In Short:
Reliance Jio’s strong net profit growth in the fiscal first quarter was driven by lower depreciation costs and higher margins due to reduced network costs. Analysts expect a boost in ARPU with recent tariff hike. Jio’s 5G subscribers are growing, but selling & distribution costs are a concern. Jio’s focus on 5G monetization and recent tariff hike are expected to drive revenue uplift and ARPU growth in coming quarters.
Reliance Jio’s Strong Net Profit Growth
In the fiscal first quarter, Reliance Jio witnessed significant net profit growth, driven by lower-than-expected depreciation & amortisation costs and higher margins due to decreased network costs resulting from a moderation in 5G capex spends, as per analysts.
Boost in ARPU Expected
Analysts anticipate that the recent headline tariff hike by Jio will give a much-needed boost to the company’s stagnant ARPU in the upcoming quarters. It is estimated that Jio’s blended ARPU is set to rise in the coming years.
IIFL Securities projects a rise in Jio’s blended ARPU to Rs201/Rs224/Rs259 by FY25/26/27 from Rs 181.7 in Q1FY25.
Jio recently increased headline rates by 12-25% to enhance ARPU, amidst the absence of significant monetisation of 5G services. The company is focusing on revenue growth and impact assessment post the tariff hike.
Concerns and Analysis
Analysts express concerns over the 14.2% sequential increase in Jio’s selling & distribution costs in the June quarter, expecting it to remain elevated. The competition with Vodafone Idea (Vi), especially post-fundraise, may impact Jio’s strategies.
Jefferies noted that Jio’s profit beat estimates in the first quarter was due to higher margins and lower-than-expected network costs and depreciation costs. The telco’s Ebitda margins also saw an expansion.
Financial Performance
During the fiscal first quarter, Jio reported a 12% year-on-year growth in net profit to Rs 5,445 crore. The revenue from operations also increased by 10% to Rs 26,478 crore.
The recent tariff hike is expected to drive revenue uplift for Jio over the next few quarters, with further price hikes predicted by the end of the year.
Future Outlook
Analysts believe that Jio has the potential to drive 5G monetisation and boost ARPU in the upcoming quarters, especially after making premium next-gen mobile broadband services costlier effective July 3.
Overall, the market expects significant growth and improvement in key financial metrics for Jio in the coming years, with a focus on network expansion and revenue enhancement.
