Such is the extent of Reliance Jio's savings from the IUC cut that they have even driven profit growth at parent Reliance Industries in Q3
Telecom Regulatory Authority of India’s (Trai’s) 57% cut in interconnection usage charges (IUC) was always expected to benefit Reliance Jio Infocomm Ltd, which ran a huge bill on this account. So it isn’t entirely surprising that about 90% of the increase in Reliance Jio’s operating profit is on account of savings accruing from the IUC cut.
But such is the extent of the savings that they have even driven profit growth at parent Reliance Industries Ltd. Consolidated earnings before interest (Ebit) and tax rose by Rs1,706 crore sequentially to Rs15,315 crore in the December quarter. IUC savings amounted to Rs1,058 crore. As such, about 62% of Reliance’s profit growth was on account of IUC savings.
Without these savings, the parent company’s profit would have grown by just 4.8% sequentially, compared to the reported 12.5% growth in Ebit.
Of course, there’s more to Reliance Jio’s results than just the IUC cut. Revenue rose 11.9% sequentially to Rs6,879 crore, which is a welcome sign for the company’s investors. The pace of subscriber additions was brisk and improved over the September quarter.
On the other hand, the company continues to capitalize some expenses, since all of its businesses haven’t been commercially launched. As such, its profit and loss statement still doesn’t provide a full picture of profitability.
On Thursday, Bharti Airtel Ltd reported a sequential decline of Rs700 crore in its Ebitda, half of which was on account of the IUC cut impacting its revenues and profit. Ebitda stands for earnings before interest, tax, depreciation and amortization.
The other major contributor to Reliance Industries’s profit growth last quarter was the petrochemicals division, which reported a 16% increase in Ebit to Rs5,753 crore.