BackRIL to invest Rs30,000 crore in Reliance Jio in 2 years: Moody’s
Moody's says the investment in the telecom business is a credit negative for RIL
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New Delhi: Reliance Industries Ltd (RIL) is expected to invest Rs30,000 crore, of the total Rs70,000 crore announced, in its telecom arm Reliance Jio Infocomm over the next two years, credit rating firm Moody’s said on Monday.
The investment in the telecom business is a credit negative for RIL because Reliance Jio will not generate any EBITDA (earnings before interest, taxes, depreciation, and amortization), an indicator of cash flows, for at least next 12 months, it said.
Moody’s however added that Reliance Jio will be a formidable competitor in the sector making it a credit negative for top telecom operators already in the field.
“Based on RIL’s March 2014 annual report, we estimate that it has already invested about Rs400 billion (Rs40,000 crore) in Reliance Jio, and we expect RIL to invest the next Rs300 billion in Reliance Jio over the next two years," Moody’s Investors Service said in a statement.
RIL recently announced that it will launch commercial 4G telecom service of Reliance Jio in 2015 entailing investment of Rs70,000 crore.
RIL has said that Reliance Jio will initially cover about 5,000 towns and cities accounting for over 90% of urban India, as well as over 215,000 villages in India and the target is to expand this to over 600,000 villages.
Moody’s said Reliance Jio will be a “formidable competitor in India’s telecom sector" as it will enter the business with financial muscle.
Reliance Jio’s entry into highly competitive telecom sector is also credit negative for incumbent mobile operators and market leaders Bharti Airtel Ltd and Vodafone India because “it will undoubtedly result in intensified competition that will lead to declines in average revenue per user and margins".
But, it also said that strong spectrum holding of incumbents; existing large subscriber-bases and well established brand equity; offering 2G and 3G services (apart from 4G services being launched) as well as marketing and distribution architecture mitigate much of the near-term competitive threat from Reliance Jio for them.
“Furthermore, given issues of language and literacy, large parts of rural India remain a substantially voice-based market where near-term demand for 4G services may be muted," Moody’s said. PTI
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