Jio jitters: Telcos’ earnings to be hit, Voda IPO may be delayed
But Jio will need at least three years to breakeven, say brokerages
Jio’s disruptive offering of free voice calls and cheap data rates has pushed down earnings estimate for existing players, including Bharti Airtel, Idea Cellular and Reliance Infocomm. It has even raised the possibility of a delay in the schedule of the ₹20,000-crore public issue plans of Vodafone India.
Vodafone’s IPO was being described as one of the largest of its kind in India, and a major event in India’s telecom sector apart from the upcoming spectrum auction that is scheduled to raise around ₹40,000 crore. Vodafone was to file its draft prospectus by November. It takes at least four months for the regulator to come out with dates after that.
“Vodafone should be willing to do the IPO at slightly lower valuations because the market is going to value telecom stocks 10% lower. The entire telecom market is going to be impacted by Jio,” said Dara Kalyaniwala, vicepresident, investment banking, Prabhudas Lilladher
“RelJio launch is disruptive due to voice being made free and 29% to 54% cuts on data versus current pricing,” said Vaibhav Dhasmana of investment bank Jefferies. “These changes would create pressure on incumbents on multiple fronts — future of the $22-billion voice market, loss of subscriber and revenue share, impact on data usage and ARPU dynamics and cost pressures in the face of competition.” ARPU refers to average revenue per user.
Kotak Institutional Equities has cut its earnings estimates on Airtel and Idea by 7% to 25% for 2017-2019. ICICI Direct, too, has reduced its estimates on Bharti Airtel and Idea by 13% to 30% for 2016-17 and 2017-18. Reliance Infocomm is already grappling with a large debt position.
Reliance Industries Ltd (RIL) chairman Mukesh Ambani on Thursday said Jio will be launched on September 5 .
The 1-billion-plus mobile subscriber base in India is one of the largest in the world.
On Friday, RIL shares closed at ₹1,012.65 on the BSE, down 1.6%, even as others recovered; Airtel (up 2.3%) and Idea (up 0.3%) regained after a 6% to 10% fall on Thursday. In the last three sessions, RIL has slipped 5%.
Rohit Ahuja, an analyst at Religare Institutional said RIL’s consolidated profits will be hit by losses from the telecom business in the initial three to five years.
“We believe RelJio would need 75-80 million subscribers with an ARPU of ₹180 for break-even over the next two to three years,” IDFC Securities said in a note.
Goldman Sachs expects RelJio to hit break-even by 2019-20 with 75 million subscribers.
RIL has so far invested ₹1.50 lakh crore in RelJio, and has set a target of 100 million customers. According to industry experts, a figure of 60 million ay be more realistic. “Effective data usage of 250 crore GB (gigabyte) a month (25 GB per user per month) could be difficult to achieve, given that the current data consumption for existing operators is under 1GB level,” said Bhupendra Tiwari, analyst at ICICIDirect.com.
“Further, 25 GB/month usage implies 50 paisa/MB, which implies data ARPU of ₹1,250 versus data ARPU of ₹200 for Airtel and ₹142 for Idea. Therefore, the implied data usage target itself is a tall task for the first couple of months.”
WITH DATA IN FOCUS, JIO IS OFFERING ₹15,000 WORTH OF FREE APPS. NOW, OTHER TELCOS WILL HAVE TO REFRESH THEIR VALUEADDED SERVICES OFFERINGS