Jio Prime membership numbers ring in summer surprise for Reliance investors
The Street has welcomed the
strong customer response to Reliance Jio’s offer and the company’s
plan to extend its Prime offer by 15 days. As analysts were anticipating Jio to
retain 50-60 million customers after the end of its free period, the Prime
membership number of 72 million customers also surprised the Street. Reliance Industries
Ltd (RIL), whose subsidiary is Jio, ended at Rs 1,371.20 on BSE.
This extension will help the
company increase its telecom subscriber base from 72 million to its target of
100 million, say analysts. Further, subscribers to the Rs 149 plan have got
additional time to migrate to the upgraded Rs 303 plan, which should lead to a
higher base of Prime subscribers. The extended period, according to analysts at
CLSA, allows for gradual transiting from free to paid services and further
cement high-data usage habits.
Jio, they add, could have well
over 100 million paid subscribers by March 2018, which could drive an upgrade
to the earnings estimate for FY19 and rerate the stock (RIL)
significantly.
There are, however, some
concerns. The first is delay in monetisation on the back of significant upfront
investments, given the three more months of complimentary service, while the
other is the indication that the ‘Summer Surprise’ offer is the first of many
surprises for RJio’s Prime subscribers.
Analysts at Jefferies are
cautious and have a hold rating on the company though they have increased
estimates of a steady market share for RJio from 25 per cent to 30 per cent.
The free offer is expected to hit RJio’s FY18 earnings estimates by 6-7 per
cent and requires an increase in the quarterly subscriber base to 5 million to
negate the earnings impact on an annualised basis, say analysts at Morgan
Stanley.
Analysts at ICICI Securities
estimate a revenue market share of 10 per cent for FY18 but the break-even at
earnings before interest and income tax (EBIT) to come by FY21, given large
depreciation costs of Rs 10,000 crore every year.
As the Jio subscription offer
remains in focus, the company is expected to unfold further plans/services such
as internet TV and is likely to use fibre-to-home infrastructure for remote
villages too. With improved confidence and revenue visibility for the telecom
business, concerns on the company’s investments of more than Rs 1,50,000 crore
in the telecom venture are also reducing.
RIL will benefit from its
core refining and petrochemicals businesses. Its investments over the past few
years in expanding these verticals will yield results and drive earnings also.
The process has begun with the commissioning of the first phase (a 50 per cent
capacity increase) of its 2.2-million-tonne per annum Paraxylene (PX) expansion
project at the Jamnagar petrochemicals complex at an investment of more than $3
billion. While this commissioning is a key milestone, it is to be followed by
the refinery off-gas cracker with 3.3 million tonnes per annum capacity, which
is lined up for commissioning soon. Subsequently by the middle of 2017, a
pet-coke regasification project is expected to come on stream. Thus, the second
half of 2017-18 will see benefits accruing after these projects stabilise and
the December quarter is expected to be stronger for RIL.
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