Last Modified: Wed, Sep 14 2016.

03 48 PM IST

Reliance Jio will turn Ebitdar-positive only

by 2019: Moodys
Reliance Jios aggressive tariff plans will have a big impact on cash reserves of Reliance
Industries, says Moodys Investors Service

Moodys also expects RIL to incur increased capital expenditure because of Reliance Jio.
Photo: Aniruddha Chowdhury/Mint
New Delhi: Reliance Jio Infocomm Ltd will manage to generate a positive Ebitdar (earnings
before interest, taxes, depreciation, amortization and restructuring) only by 2019, that too at a
lower average revenue per user, Moodys Investors Service said.
Jios aggressive tariff plans will have a profound impact on cash reserves of Reliance
Industries Ltd (RIL), especially as the business will bring revenues only from January, the
rating agency said in a report.
We no longer expect the telecom business to generate any EBITDAR in the fiscal year
ending March 2017 (fiscal 2017), and for EBITDAR in fiscal 2018 to fall below our previous
estimate. By fiscal 2019, however, we expect EBITDAR to be either in line or better than our
previous estimate, as we expect the company will by then have built up a substantial
subscriber base, although at a lower average revenue per user, the report said.

Moodys also expects RIL to incur increased capital expenditure because of Reliance Jio. The
biggest spectrum auction in the country is beginning on 1 October with 2,354.55 megahertz
(MHz) of spectrum on the block, and includes auction of the premium 700MHz band as well.
Nearly 80% of the spectrum (by value) being auctioned is for the 700MHz band, which is
better suited for 4G data services. Although we expect Jio to bid for spectrum in the
upcoming auctions, our rating only incorporates spending in line with its previous purchases
as the company already has the spectrum it needs for its operations, Moodys report said.
Motilal Oswal, in a report issued on 9 September, also said that the challenge faced by
Reliance Jio will be to keep its subscriber base in place at an ARPU (average revenue per
user) of Rs200 plus. We have factored in about 30m subscribers by FY17E (around 4m
monthly subs addition) and 60m by FY18E at ARPU of INR216. This leads us to assume
EBITDA loss of INR51b and IRR of 7.5%, said a report by Motilal Oswal.
Reliance Jio has entered with the aim to increase data consumption in the Indian market
where monthly mobile data consumption per user is below 300MB. The company intends to
cover 90% of the population by March 2017 and 100 million subscribers in shortest period of
time.
However, as per analysts at Moodys, a change in consumer behavior at this scale and in
such a short period will be challenging. While we expect Jio will achieve its 100 million
subscriber target by March 2018, it remains uncertain to what extent data consumption will
increase, especially once customers are asked to pay for it.
Reliance Jio has built its entire network around growth in data usage, but Deutsche Bank in a
report on 1 September suggested that over the past six months, data penetration has stagnated
at around 23% and usage growth has declined to 73% from 55%.