Jio may find it hard to boost revenue without tariff hikes and 4G upgrades: Analysts

Reliance Jio Infocomm's modest show in fiscal Q2 highlights challenges in boosting revenue in the absence of tariff hikes, especially as it does not have subscribers upgrading to 4G from 2G like rival Bharti Airtel, which could weigh on average revenue per user (ARPU) growth, say analysts.

A sharp rise in expenses, including payouts towards network costs, depreciation & amortisation (D&A) and employee and selling costs, also dragged the telecom market leader's net profit in the July-September quarter. Experts, in fact, expect Jio's D&A costs to increase once 5G spectrum amortisation starts over next few quarters.

Analysts, though, said Jio's per-capita data consumption was strong, rising 6% sequentially in the past quarter. This, they said, underlined organic consumption-led growth, which could accelerate after the 5G launch as that is set to boost consumption and support some ARPU premiumisation.


"Cost inflation surprised negatively and restricted Jio's Ebitda margin expansion to 51% (up 90 bps QoQ) ... network opex was also up 5% sequentially to ₹7,200 crore, especially after the rise in repayment of lease liability by ₹2,000 crore in H1FY23," ICICI Securities said. If repayment of lease liability is included, Jio's network opex jumped 30% on-year, it said. Rental cost is treated as financial lease under Ind-AS norms.

ICICI Securities pegs Jio's 5G network capex guidance at ₹70,000 crore. According to Goldman Sachs, Jio's revenue market share (RMS) was largely flat sequentially at 43% in the September quarter. But the brokerage firm expects its revenues to grow 6% on-quarter in the ongoing fiscal Q3 on expectations of a tariff hike. IIFL said Jio "does not have ARPU tailwinds from 2G-to-4G upgrades like Bharti".

Jio has been a pure-4G services provider, before its recent beta launch of 5G in five cities. While Airtel has moved to primarily a 4G player now, it still offers 2G services. Analysts said Jio's 700MHz 5G spectrum holdings should give it a deeper indoor coverage advantage and a stronger case for cracking the high-ARPU market, though market execution versus Airtel would be critical. This is, since the top two telcos are set to focus on 5G launches in the 5-10 big cities over the last two quarters of this fiscal year.

IIFL estimates Jio's blended (mobile + fibre to the home) quarterly ARPU for FY23/24/25 to grow to ₹180, ₹204 and ₹222, respectively. ARPU, a key performance metric for telcos, rose modestly to ₹177.20 in the fiscal second quarter from ₹175.70 in the previous three months.