Reliance Jio ARPU likely to grow, but Vi Q3 growth not enough: Analysts | Techno Glob

A mix of recent rate hikes, further decline in low-paying customers and strong growth in its home broadband user base boosted Reliance Jio Infocomm’s average revenue per user (ARPU) in the December quarter, a trend that is expected to continue through December. The impact of the rate increase will be felt in the next few quarters, analysts say.

Conversely, experts said Vodafone Idea’s 3.3% sequential quarter-on-quarter revenue growth was not enough to provide the cash flow required to meet the telecom operator’s rising interest and financing costs, which rose 4.2% quarter-on-quarter to Rs 5,300 crore. They said the cash-strapped carrier’s lower quarterly capital spending could weaken its network and make it less competitive against Reliance Jio and Bharti Airtel.

“Jio’s quarterly Ebitda (earnings before interest, tax, depreciation and amortization) report that grew more than revenue shows that it is fully focused on growing profitability and attracting high ARPU customers,” said Nitin Soni, senior director (corporates) at global rating agency Fitch. Told to E.T. “On the contrary, Vi’s trend of declining capital, heavy customer losses and poor cash generation continues, and modest sequential earnings growth is insufficient to meet its rising interest and financing costs.”


According to analysts, Jio’s quarterly operating profit (Ebitda) growth of 5.8% was driven by lower network operating expenses (Rs 6,240 crore), which was expected to reach Rs 9,510 crore. This, in turn, increased the income of the television company headed by Mukesh Ambani in October-December.Jeffery said in the report that Jio’s prepaid tariffs from December 1, 2021, post subscriber cleanup, reflect its focus on quality subscribers and ARPU-led growth, which bodes well for the overall pricing environment. Jio’s ARPU grew by around 6% quarter-over-quarter to Rs 152 crore in the third quarter of the financial year.

But the global brokerage said “Jio’s 86% growth in Q3 margins looked very high and excluded certain costs that may not be sustainable.” It cut the telco’s 2021-22-2023-24 revenue forecasts by 1-4% and Ebitda estimates by 2%. “For FY22-24, we expect Jio to deliver 17% / 21% CAGR in Ebitda/Profit, but cut its valuation by 1% to $87 billion based on estimated cuts.”

New Street Research said that while the 8.5 million decline in Jio’s customer base in the December quarter reflected a decline in low-cost customers, it suggested that the JioPhone Next – Jio’s low-cost 4G smartphone developed with Google – did not help the telco grow its subscribers last Diwali. .

Jio’s net income rose 2.6% sequentially to Rs 3,617 crore, while its quarterly profit from operations rose 3% to Rs 19,347 crore. Conversely, Vi’s net loss for the December quarter widened to Rs 7,234.1 crore due to higher operating and interest expenses. Vi’s ARPU rose sequentially to Rs 115 (compared to Rs 109 in the previous quarter), helped in part by a sharp hike in prepaid rates in November, but that led to heavy customer losses. Vi’s equity was also lower at Rs 1,050 crore compared to Rs 1,300 crore in the September quarter.

ICICI Securities said, “Vi’s cash Ebitda of Rs 1.26 billion in the December quarter came in higher than expected on higher revenues despite subscriber losses. While the big benefit of recent rate hikes was reflected in Q4FY, the telco’s slower 4G rollout and lower add-on penetration in Q4FY2 (minutes decline and information usage) provide little comfort to the sustainability of the earnings growth trend over two quarters.

Vi’s traffic usage per user fell 5.4% to 14GB in the quarter, while voice usage per user fell to 620 minutes from 630 minutes in 2Q22. ICICI Securities said Vi continued to lag behind its peers in investing in 4G and the delay in raising funds limited it from aggressive capital.

Fitch’s Soni said Vi needs to close the long-awaited fundraising without delay, failing which the downward trend in capital will continue and it will remain vulnerable, which could lead to heavy customer losses in the coming quarters.

Last month, Vi’s management said equity financing – including from promoters Vodafone Plc and Aditya Birla Group – could be tied up by March. The telco is hoping the government’s recent relief package, which allows it to defer statutory payments for four years, and recent price hikes will make it more attractive to investors.

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