Reliance Jio Infocomm posted its first net profit since starting services, buoyed by strong subscriber additions and cost efficiencies, including sharply lower payments of interconnection charges.
The Mukesh Ambani-owned company, which upended the market since its entry in September 2016 with its initially free voice and data offerings, posted a profit of 504 crore and a 12% on-quarter increase in revenue to 6,879 crore in the three months ended December.
India’s fourth-largest telco by users made a net loss of 271 crore in the three months ended September, when it reported results for the first time.
“Jio’s strong financial result reflects the fundamental strength of the business, significant efficiencies and right strategic initiatives. Jio has demonstrated that it can sustain its strong financial performance,” Mukesh D Ambani, Chairman of Reliance Industries Ltd., Jio’s parent, said in its earnings statement on Friday.
The company’s average revenue per user (ARPU) – a key performance parameter – stood at 154, compared with 156.4 in the previous quarter. Earnings before interest, tax, depreciation and amortisation (Ebitda) were 2,628 crore, surging over 82% sequentially, with an Ebitda margin of 38.2%, compared with 23.5% in the previous quarter.
Jio added a net 21.5 million customers to end December with 160.1 million users. With its rivals having more users, Jio is a net payer of interconnection usage charges (IUC), which were reduced by the telecom regulator by 57% from October 1. Jio paid about 1,082 crore as IUC, less than the almost 2,140 crore in the previous quarter.
“The (IUC) reduction will continue as IUC rates have been slashed,” Anshuman Thakur, Jio’s head of strategy and planning, told reporters.
“We are creating enormous capacity. Costs have been incurred, now it will be more on revenue generated. That scale benefit is contributing to improving the profit number and this revenue will go up, not costs,” Thakur added, indicating higher profitability going forward.
Network operating expenses were about 1,737 crore, compared with 1,372 crore in the second quarter, while depreciation & amortisation costs rose to 1,193 crore from 1,184 crore. Total expenses fell almost 7% sequentially to ?6,109 crore.
Jio’s results came a day after market leader Bharti Airtel posted a 39% drop in net profit to 306 crore, hurt by the IUC cut and the ongoing price war, on a 13% decline in revenue, with ARPU at 123, its lowest ever. Airtel’s India mobile business revenue fell 22% to 10,751crore.
“The (Jio) results reflect a strong quarter with the growth in data and subscriber base, which continues to be impressive,” said Mritunjay Kapur, head of telecom, media and technology at KPMG India.
However, not all analysts were convinced.
“The numbers in turning positive on EBIDTA and PAT are difficult to accept in such a short period, given the high cost. But they’re there and it is quite clear that Rel Jio has benefited from IUC cut where others have taken a hit,” said Sanjiv Bhasin, an analyst at brokerage IIFL.
Jio has come out with tariff plans across price ranges and even cashback offers to expand market share and such offers will continue, said Thakur. “We will offer more to customers – we have the capabilities to do so. Cashback offer impact will be seen in the next (ongoing) quarter,” Thakur said.
Chief Financial Official V Srikanth added that the recent rate cuts by Jio were a reaction to competitors dropping prices.
Total wireless data traffic in the quarter was 431 crore GB, far higher than Bharti Airtel’s 110 crore GB. Average data consumption per user per month was 9.6 GB, while total voice traffic was 694 minutes per user per month. Airtel, in comparison, recorded 575 minutes per user, while data usage per subscriber was 5,349 MBs.
Jio saw 1.4% of its users moving to another network, compared with Airtel’s 3.3%.
Debt stood at 51,000-52,000 crore, on an equity base of 100,000 crore. The company’s capital expenditure was some 7,000 crore in the December quarter, said Thakur.
Jio agreed last month to acquire the wireless assets of Reliance Communications and its affiliates in an all-cash deal for up to 24,000 crore.