Mumbai: On a consolidated basis, Reliance Industries Ltd (RIL) reported a 39% year-on-year increase in revenue to Rs1.29 trillion and a 17% growth in net profit to Rs9,435 crore.

The performance of its various business segments was a mixed bag. The refining business disappointed with a gross refining margin of $11 a barrel, lower than Street estimates. But the petrochemicals business did well, with the segment’s profit increasing 87% year-on-year. The organized retail business sprang a surprise with segment profit increasing by a whopping 291% to Rs951 crore.

But investors who track the fortunes of Reliance Jio Infocomm Ltd will be disappointed. Firstly, Jio’s revenue growth slowed to 3.6% last quarter, much lower than the 11.9% sequential growth it had reported in the December quarter. This should worry telcos because the longer Jio takes to reach its revenue share targets, the longer the struggles of the sector may continue. Cut-throat pricing has dragged other telcos to losses, besides resulting in huge debt.

The other big worry is that Jio reported capital expenditure of Rs14,000 crore for the March quarter, far higher than the Rs7,000 crore it had reported in the preceding two quarters. Companies such as Idea Cellular Ltd have fallen behind in their 4G coverage because of balance sheet constraints, and Jio’s aggression on the capex front means it will remain far ahead of competition in terms of coverage. To be sure, capex tends to be lumpy. Even so, Jio has spent Rs28,000 crore on capex in the past three quarters, compared with revenues of Rs20,154 crore. After accounting for operating and interest expenses of another Rs15,000 crore, it burnt over Rs23,000 crore in just the past three quarters. The company’s capex is expected to remain high, since it plans to increase the number of base stations substantially from current levels. The acquisition of Reliance Communications Ltd’s assets will only add to the tally.

The tariff cuts announced by Jio in January hit its own revenues as well. Still, due to strong subscriber additions and the manner in which the company accounts for its Prime membership, some analysts had anticipated growth to remain high. Analysts at Motilal Oswal Securities, for instance, had estimated revenue growth of 10% for Jio. The firm has been accounting for revenues from sales of its Prime membership, assuming its benefits will end in March 2018. As such, for memberships sold in the March quarter, the entire Rs99 for the membership was expected to be accounted for. The fact that revenue growth was under 4% despite this boost and a 17% jump in subscriber base is a dampener. The all-important question is how Jio responds to the deceleration in its growth rates.

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