To bridge the Arpu gap with Airtel, Jio has to raise rates twice

Analysts estimate that in order to catch up to rival Bharti Airtel on the average revenue per user (Arpu) level, Reliance Jio, which has the greatest market share in India, would need to implement two pricing rises of between 15% and 20% throughout the course of the next three years.

 

Analysts predict that Jio’s ARPU, thanks to rate increases and an improved user mix, would reach Rs 235 by FY27. In contrast, it is anticipated that Airtel’s Arpu would reach Rs 286 during the following three years.

The same acquires relevance given that Jio’s Arpu, at Rs 182, has remained unchanged sequentially for the previous three quarters despite posting profits for the January–March quarter that were in line with analysts’ projections.

Jio’s Arpu weakened, according to JP Morgan analysts, as a result of the early popularity of JioBharat feature phones at cheaper tariffs. Additionally, the free availability of 5G is drastically reducing 4G data top-ups.

Jio now has 108 million 5G users. Currently, 28% of its wireless data traffic is carried by its 5G network. This indicates that the corporation provides customers with free access to 28% of data traffic.

Analysts at Jefferies said, “Arus have limited room to expand without tariff hikes given that 5G is being offered for free.”

“We anticipate Arpus to rise at a 9% CAGR (compound annual growth rate) over FY24-27 to Rs 235 by FY27. We raise our Arpu estimates by 1-2%,” said Jefferies.

Following the elections, analysts predict a 20% increase in tariffs in the July–September quarter of FY25 and another rise of the same magnitude in FY27.

A rate increase is essential for Jio, which has been concentrating on growing its subscriber base, considering that the company’s free cash flow was negatively impacted by Rs 15,100 crore in FY24 as a result of a substantial increase in cash interest expenses to Rs 13,600 crore. Also, the network capital expenditure of the corporation increased by 60% YoY to Rs 41,000 crore.

In addition, the company’s return on capital employed (ROCE) declined even further to levels below 6% as a result of increased expenditures, the lack of 5G monetisation, and tariff increases.

As the corporation begins to recoup its new spectrum investments over the following one to two years, analysts predicted that its ROCE would increase.

IIFL Securities said in a report that “we expect cash capex to stay elevated in FY25 as capex creditors unwind further, even though accrual capex should come off going forward.”

Tariff increases, according to IIFL, would support Jio in bolstering its return ratios in the lead-up

to Jio Platforms’ anticipated IPO in 2025.

The parent company of telecom provider Reliance Jio, Jio Platforms, said on Monday that its net profit for the January–March quarter increased by 2.5% on a quarter-over-quarter (QoQ) basis to Rs 5,583 crore.

The period’s total operating revenue increased 4.2% QoQ to Rs 28,871 crore as a result of an increase in the number of subscribers and increases in voice and data use.

In FY24, the company’s net debt was Rs 1.61 trillion. ICICI Securities said in a report that “RJio’s net debt continues to rise on higher capex investment and cash finance cost.”

During the quarter, 10.9 million new users joined Reliance Jio. The overall number of subscribers increased from 470.9 million at the end of December to 481.8 million at the conclusion of the March quarter.

Strong Jio subscriber growth is encouraging for the price environment and 5G monetization in the mobile space, according to analysts.