Jio-In-line performance; subscriber-add surprises positively, ICICI Securities

In Q1FY22, Reliance Jio Infocomm’s (RJio) revenues and EBITDA came broadly in line with our estimates while net profit was higher due to lower cost recognition for spectrum acquired in the Mar’21 auctions. Subscriber (sub) addition during the quarter was strong at 14.4mn over and above the 15.4mn added in Q4FY21, which benefited from aggressive Jiophone plans for one / two years. ARPU has been flattish QoQ despite growth in FTTH and enterprise revenues, which means the underlying mobile ARPU declined. We see limited scope for revenue growth for RJio in the absence of a tariff hike and rise in operating costs from InVIT payments and new spectrum. We have updated our model on basis of the annual report and tweaked our estimates. We continue to build-in a share ARPU growth in H2FY22, which remains a downside risk in absence of tariff hike.

• RJio revenues grew 3.7% QoQ. In Q1FY22, revenues grew to Rs180bn, up 3.7% QoQ / 8.7% YoY (L2L: +18% YoY, adjusted for IUC impact). This was driven by continued strong sub addition of 14.4mn to 441mn, on a base of 15.4mn addition in Q4FY21. However, ARPU was flattish at Rs138 QoQ, despite an additional day and growing FTTH subs who bring in much higher ARPU. This can be attributed to higher Jiophone addition, which has much lower ARPU, and impact on recharges due to lockdown. We expect ARPUs to grow from Q2FY22 onwards with normalisation.

RJio’s revenues, adjusted for IUC, grew 30% YoY in Q4FY21 and 19% in Q1FY22, which means IUC revenues were at Rs17bn and Rs15.8bn for the two periods. We are surprised at the IUC revenue decline despite 2.9% QoQ growth in minutes.

• Engagement metrics have improved. Churn rate dipped to 0.9% (vs 1.3% in Q4FY21) improving its sub retention rate, while gross sub addition dipped to 26.7mn (from 31.2mn in Q4FY21). Minutes grew 2.9% QoQ / 19.6% YoY to 1,063-bn, and data usage rose sharply by 21.9% QoQ / 43% YoY to 20,340-bn GB. Company attributed the increase to better network quality from deployment of new spectrum bought in the Mar’21 auctions.
• Network cost inflation sustained. Network cost grew 3.8% QoQ / 14.3% YoY to Rs60bn, and likely to rise further due to payments to tower and fibre InVITs. LF/SUC cost rose 8.8% QoQ on the lower base of Q4FY21. Employee and SG&A costs dipped 2% and 7.9% QoQ. EBITDA grew 3.9% QoQ / 23% YoY to Rs86bn. However, depreciation and amortisation (D&A) rose only 3.3% to Rs31bn despite deployment of the entire spectrum bought in Mar’21 auctions. Incremental rise in D&A suggests 14% of the cost towards new spectrum was recognised in Q1FY22, and the remaining should be recognised in Q2FY22 and beyond. Similarly, interest cost rose 2.6% QoQ to Rs8.2bn, which also suggests interest cost for the entire deferred spectrum liability was not captured in Q1FY22. Net profit grew 4.2% QoQ to Rs35bn.
• Jio Platforms’ EBITDA dipped 2.8% QoQ / 16% YoY to Rs2.8bn. RJio’s subs addition has been healthy, and Jio Platforms (standalone, which houses most of the digital properties) has also grown strong at 4.1% QoQ / 37.4% YoY to Rs9.6bn in Q1FY22. But, it has been flattish to declining in past four quarters which is disappointing. Moreover, Jio Platforms’ EBITDA has dipped.
• RJio remains optimistic on JioFiber. JioFiber customers grew to 3mn in Q1FY22; however, it expects the sub-base to rise rapidly post-covid with ‘fiber homepass’ currently at 12mn. The addition has remained under 0.6mn per quarter since the new lower tariff plans were launched.

CT Bureau