Reliance Jio’s rising inactive subscription and reduced tariff discounts lower the risk of disruption
The global chip shortage that has disrupted a swathe of firms from carmakers to switch producers has hit smartphones with Reliance Jio postponing the launch of the much-promoted JioPhone Next. But this has brought relief to competitor Bharti Airtel.
Last week, Reliance Industries Ltd (RIL) announced that JioPhone Next, earlier planned for launch on 10 September, will now be introduced around the Diwali festival, which falls in early November.
Citing that the global chip shortage could take more than a year to resolve, analysts at Motilal Oswal Financial Services Ltd warn of further delays. This is sentimentally positive for Jio’s close rival Bharti Airtel. Shares of the firm touched a fresh 52-week high of ₹697 on Monday on the NSE. What helps Airtel further is the lack of details such as pricing and features of JioPhone Next. As such, analysts believe that the launch itself may not dent Airtel’s subscriber base immediately.\
“Bharti’s low Arpu (average revenue per user) subscribers (15-20%) could see some dilution. Assuming a 20-30 million subscriber loss, i.e. 6-9%, the revenue impact could be 3-5%," the Motilal Oswal analysts said in a report on 12 September.
Analysts at Macquarie and CLSA too agree that the JioPhone Next launch is not a big concern for Bharti Airtel. Macquarie maintains an outperform rating on the stock with a 12-month target price of ₹867. CLSA has also retained a buy call and raised the target to ₹825 per share. “The telecom firm had an 18 times jump in data usage. Arpu is up 46% from lows and we expect it to rise to ₹199," CLSA said in its latest report. In June, Bharti Airtel added 2.4 million subscribers in its visitor location register, a proxy for active subscribers, after recording a decline of 5.7 million in May, indicating that the worst was behind.
It further added that Airtel is likely to see an Ebitda (earnings before income, tax, depreciation and amortization) growth of 24% by FY24. Jio’s rising inactive subscription and reduced tariff discounts lower the risk of disruption, CLSA said.
Of course, this does not bode well for the RIL stock, which saw some increase recently on anticipation of the launch.
Investors would reckon that the relaunch of JioPhone in March lifted its active subscriber additions to more than 7 million, which, however, slowed to 2.4 million in June. In this backdrop, the JioPhone Next was seen as the next key trigger for Jio’s subscriber growth. Analysts caution that Jio may now see some softening in subscriber additions in the near term.
Meanwhile, the worst-hit could be Vodafone Idea Ltd, which is estimated to have a larger pool of low Arpu subscribers. Analysts say that if it manages to survive until the launch, the telco could face the challenge of increase in subscriber churn rate. Vodafone Idea’s visitor location register subscribers continued to see a decline in June.
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