How price cuts hurt Reliance Jio this time

Mukesh Ambani-controlled telecom major Reliance Jio’s decision to undertake price cuts in the January-March quarter led to a decline in its average revenue per user (Arpu) by 11% to Rs 137.1. The company had reduced its base tariff plan for JioPhone users at Rs 49/month while JioPrime membership was extended by a year for free. However, the dip in Arpus came along with a strong addition in the subscriber base during the quarter at 26.5 million.

The operating revenue grew 3.6% during the January-March quarter at Rs 7,128 crore, slower than 11.9% revenue growth recorded in the December quarter. Several analysts had expected a decline in Arpu owing to recent tariff cuts undertaken, but see strong subscriber additions as a positive thing.

In an analyst note, Kotak Institutional Equities says RJio’s fourth quarter earnings were weaker than our expectations on almost all fronts, including revenues and PAT while capex was way above expectations.

Watch this Zee Business video here:

Revenues at 7.5% were below our estimated Rs 7,700 crore. “Disappointment on the revenue front was a combination of lower-than-expected net subscriber additions and lower-than-expected Arpu. We expected Jio to end FY2018 with 199.6 million subscribers but the company reported 186.6 million,” it said

“A much higher increase in monthly net additions was expected driven by a combination of the ultra-aggressive Rs 49/month unlimited voice plan with 1GB/month data on its Jio Phone and the company indicating that it had ironed out supply issues on the JioPhone front,” Kotak said.

Overall, RIL has spent Rs 21,000 crore as capital expenditure in the March quarter, of which Rs 14,000 crore was spent on telecom.

A Mumbai-based analyst said price cuts are expected to stabilise in the next two quarters as tariffs have bottomed out. “Going forward, the focus will be on driving digital content - movies, music, videos and its other applications on Jio app.”

By Mansi Taneja, DNA Money