Jio unlikely to raise tariffs in near term: J P Morgan

Jio's better-than-expected margins, reliable and strong consumption stats, accompanied by solid Infrastructure Investment Trust (InvIT) closure, are the key positives for the company.

Mumbai: Reliance Jio is unlikely to raise tariffs in the near term which may not be good news for its peers, said brokerage firm, J P Morgan.

Jio's better-than-expected margins, reliable and strong consumption stats, accompanied by solid InvIT closure, are the key positives for the company, said the firm.

"Since all engagement and volume-related stats were quite robust as usual and with subscriber adds not showing any signs of slowing, it appears unlikely that RJio will be looking to raise pricing in the near term, thus, read-through implications for peers such as Vodafone-Idea and others for tariffs does not seem encouraging," it said.

Reliance Jio (RJio), a subsidiary of Reliance Industries Ltd., has ticked all the boxes that we would expect. Further, RJio's parent (RIL) announced the signing of the first Investment with Brookfield investing Rs 25,200 crore into the tower InvIT, said the firm.

RJio's revenue growth stood at 5.3 per cent Q/Q with (expected) marginal ARPU decline of -3.3 per cent Q/Q; consumption stats, subscriber acquisition, churn, market-share trends, geographic depth/breadth were all solid, the analyst firm stated while adding "what surprised us was the improvement in EBITDA margin to 40.1 per cent (up 110 bps Q/Q and 130 bps Y/Y) despite the payment to the InvIT."

The analyst firm said RJio later clarified to it that its fibre expenses, which we believe are substantial, are largely capitalized pending commercialization of FTTH.

Jio was also helped in its margins by the benefit of lower OPEX which is capitalized from adopting Ind AS 116 to the tune of Rs 372 crore (320 bps).

Operationally, RJio gained from a sharp decline in access costs (Rs 850 crore), down 23 per cent Q/Q or 260 bps drop as per cent of revenues as per cent of on-net calls rises with RJio's continually increasing market share, J.P. Morgan said.

RJio's Capex (including Capex of digital software/platform) remains high at Rs 11,500 crore (Rs 3,000 crore of this accounted for by digital platforms/software) - this is particularly so as Fibre and Tower CAPEX has now been pushed into the InvIT, the analyst firm said.

Also, we think success by the parent in finding investors for the fibre InvIT (just as it has done for the tower InvIT) will provide it liquidity that can help push out tariff increase(s), the firm added.