RJio’s Q1 quarterly operating performance was better than expected

Key triggers for future price performance: Increment value accretion from the ‘digital ecosystem’ that will be captured at the Jio Platforms (JPL) level.

RJio’s Q1 quarterly operating performance was better than expected. Post sim consolidation led three consecutive quarter of net subscriber decline, the company added 9.7 million (mn) subs (more than expectations of 6 mn). The positive surprise was also on higher ARPU growth which led to modest beat at topline and EBITDA levels. The ARPU saw a growth of 4.8% QoQ at | 175.7 (our expectations | 174), driven by residual pass through of tariff hike undertaken in December, 2021 and subscriber mix (higher data usage driven ARPU upgrades). The revenues and EBITDA stood at | 20873 crore /| 10964 crore up by 4.7%/4.3% QoQ, respectively. The margins stood at 50.1%, down 16 bps QoQ and tad higher than our estimates of 50%, owing to higher topline. The PAT at | 4335 crore, up 3.9% QoQ, was tad lower than expected (our expectations | 4420 crore), owing to higher than anticipated depreciation.

On KPI front, key takeaways were:

• Subscribers: The overall subscriber base (incl. Fiber and enterprise) stood at 419.9 mn, up 9.7 mn QoQ (vs. our expectations of 6 mn sub addition). We highlight that it was first net positive subscriber addition quarter post sim consolidation led three consecutive quarter of net subscriber decline. This implies that consolidation impact is largely over. The gross addition remained healthy at 35 million and churn came down to 2% vs. the average of 3.5% in the last three quarters.
• ARPU: Given the improved subscriber mix and residual impact of tariff hike undertaken in December, 2021 (~20-25% hike in prepaid segment), the ARPU saw a growth of 4.8% QoQ at | 175.7
• Data/Voice usage: Total Minutes grew 3.3% QoQ to 1,246 bn (MoU/sub/month stood at 1001), and data usage was up by 5.6% QoQ to 20.8 GB/day. The company attributed the improvement in customer metrics to subscriber mix.

Outlook: We believe that sim consolidation is largely done. The improving subscriber mix is also a key positive driver of ARPU. We have marginally tweaked the earnings estimates and we remain constructive on the company. We also await the spectrum auction to gauge how superior is company positioning itself vs. peers in terms of 5G spectrum holdings. We continue to believe that Jio’s digital ecosystem lends it a competitive advantage in the overall communication space, thereby providing superior legs of growth and valuation pegging.

ICICI Securities