How Reliance Jio, Bharti Airtel’s fortunes have differed post tariff hikes
Given the dissimilarity in reporting subscriber count, some analysts prefer to look at revenue while comparing the two firms, the sum product of Arpu and subscriber count
Both Reliance Jio Infocomm Ltd and Bharti Airtel Ltd had raised tariffs by 14-54% in December. But the impact of the tariff hikes has played out differently for both companies.
In the past two quarters, Reliance Jio’s average revenue per user (Arpu) has risen by 9.3% to ₹140, while the Arpu for Airtel’s India wireless division rose 16.3% in the same period to ₹157. This suggests that Airtel has gained much more from the tariff hikes. But there’s more to it than meets the eye.
“Some of the difference is due to the way the two companies measure their subscriber count,” said an analyst at a domestic institutional brokerage, requesting anonymity.
“Airtel weeds out subscribers who haven’t paid for a while, which results in a drop in subscriber numbers, and a boost to Arpu. Jio, on the other hand, prefers to show strong subscriber growth numbers even though it ends up lowering Arpu,” he added.
Indeed, in the past two quarters, while Airtel’s mobile subscriber base fell 1.1%, Jio has reported a 7.6% jump in the total number of users.
Given the dissimilarity in reporting subscriber count, some analysts preferred to compare the two companies by looking at the revenue figures, the sum product of Arpu and subscriber count. At first look, Jio looks better placed, with an 18.5% jump in revenue in the past two quarters. Airtel’s India wireless revenue grew at a slightly lower pace of 15.3%.
But note that Airtel has lost out in international roaming revenue, while Jio has gained in areas such as interconnect usage charges (IUC) and fixed broadband. It has become a net receiver of IUC after it started charging subscribers a fee for outgoing calls outside its network; it has also started charging its fixed broadband subscribers. Adjusted for these, revenue growth of both companies is in a similar range, said the analyst quoted above.
In terms of revenue market share, therefore, things remain the same as they were before the tariff hikes.
While that may be so, the way the incremental revenues have flown into the profit line is vastly different. Airtel’s India wireless business swung from a loss before interest and tax of around 7.4% of revenue, to a profit amounting to 1.3% of revenue.
For Reliance Jio, earnings before interest and tax (Ebit) margin fell by 130 basis points in the past two quarters.
The company has been capitalizing some expenses related to its fixed broadband business. This is now happening to a lesser degree. But the end result is that 58% of Airtel’s incremental revenues have flown to the Ebit line, while in Jio’s case, the ratio is merely 18.5%.
But Airtel’s margin of 1.3% pales in comparison to Jio’s 25.8% margin. While Airtel may have trumped in terms of profit growth in the past two quarters, it still has a long way to go.
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