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Reliance Jio’s Mobility Spend May Shift To Broadband By March 2019

The telecom operator is on track to achieve the 99 per cent of population coverage target within FY19.

In the second quarter of this fiscal year, Reliance Jio had a significant capex of around Rs 160 billion, although it was 6 per cent down from the previous quarter. Analysts expect the high capex to continue for another two quarters or so, post which the company would shift its focus to the broadband business.

The telecom operator is on track to achieve the 99 per cent of population coverage target within FY19. Jio had attributed the higher capex in the first half of FY19 to expanding mobility networks, which is in the last phase and will subside in the next one-two quarters. Incumbent telcos may still be at risk of exceeding capex targets, stated reports. Capex in the September quarter stood at Rs 160 billion or 173 per cent of revenue (Rs 92.4 billion) for the quarter.

On Wednesday, RIL announced it would pick up a 51.3 per cent stake in Hathway Cable and Datacom for Rs 29.40 billion, a 66 per cent stake for Rs 22.90 billion in Den Network. Both of these stakes will help the company speed up deployment of its fibre-to-the-home (FTTH) business.

Motilal Oswal’s Swarnendu Bhushan noted in a report that Jio’s capex intensity is almost three-four times that of incumbent’s capex guidance at Bharti Airtel’s Rs 220 billion and Vodafone Idea’s Rs 150 billion. “A bulk of the capex in H1 FY19 to the tune of Rs 330 billion is toward mobility due to high orders of electronics. Mobility-related capex is coming to an end by March 2019, post that investment focus will shift to FTTH,” wrote Bhushan.

Experts have indicated that high capex spends by Jio would also keep incumbents under pressure to elevate their capex spend for a few more years.

Reliance Jio Infocomm beat most analyst estimates by reporting a net profit of Rs 6.8 billion, up 11.3 per cent from Rs 6.1 billion for the quarter ended September 30. The average revenue per user, however, fell 2 per cent to Rs 131.7 (from Rs 134.5 last quarter) on the back on JioPhone expansion. Jio also beat all subscriber addition estimates to add a record 37 million users during the quarter to take the number to 252.3 million.

Jio reported a capex spend of Rs 130 billion and Rs 170 billion over March and June quarters, respectively. The spend came on account of wireless for loading electronics, fiber and capitalisation of costs while forex loss in capex was negligible, noted ICICI Securities.

“Further, the company mentioned its content- and apps-related cost (which is capitalised as of now) will be recognised in RIL and (company) expects network cost to rise with expansion of population coverage to 99 per cent (which is 96-97 per cent now),” wrote Sanjesh Jain, ICICI Securities.

Employee cost and selling, general and administrative (SG&A) expenses rose 10.4 per cent and 17.5 per cent sequentially. Parent Reliance Industries also noted about Rs 50 billion investments in content and apps. Costs of devices such as Jio-fi, Jiophone and set-top boxes are expensed under the Reliance Retail segment on an operating lease model. Jio reported a rise in network operating expenses by 21.5 per cent to Rs 26 billion as well as a 14 per cent increase in licence fees to Rs 9.8 billion during the quarter.

As of Q2, Jio’s capex stands at Rs 2,630 billion, however, it has refrained from providing capex guidance. Some analysts have noted the capex spend for the FTTH business will be smaller and slower compared with the spend on mobility business following the onboarding on DEN and Hathway. – Business Standard

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