After garnering over 100 million subscribers in just six months of launch, Reliance Jio plans to overhaul the telecom industry’s revenue structure and is banking upon India’s mobile data consumption opportunity to drive up revenues in the next five years. The company expects to corner a 50 percent revenue market share by FY21 and operating margins of over 50 percent.
At an analyst meet on Thursday, the company demonstrated that there is a strong demand for data in India. According to Jio’s estimates, about 400 million Indians can pay Rs 500 a month for data services. This would have a commensurate impact on its financials as well, as the company has invested nearly Rs 1.8 lakh crore into its ambitious telecom project.
Since its commercial launch in September 2016, Jio has helped increase India’s monthly data consumption 100 crore GB from a meagre 20 crore, propelling the country to the top spot in mobile data consumption globally. It may be recalled that incumbent operators were charging Rs 250 per GB of data prior to Jio’s launch in September.
Voice to Data: The Revenue Transition
Jio’s top management on Thursday conveyed to analysts that it expects industry’s voice revenues to decline from Rs 1.5 lakh crore to Rs 0.5 lakh crore. The revenue shift from voice to data will take data revenues to Rs 1.3 lakh crore. By 2020-21 the company expects industry revenues to touch Rs 3 lakh crore. As demand picks up, Jio expects government’s revenues to pick up by 50 per cent.
While Jio’s 4G broadband mobile service operates on an all-IP network, incumbents such as Idea Cellular, Bharti Airtel and Vodafone India are still using the circuit switched technology (legacy). This legacy technology has constraints when it comes to building data carrying capacity.
Jio’s broadband service is backed by strong optic fiber network that connects 60 percent of its towers. In a note, Jio said that merely 20 percent of the industry’s towers are fiberized which gives Jio a headstart of 3-4 years.
Expertspeak
Analysts expect Jio’s launch to increase the overall market for mobile data services. According to Edelweiss Securities, overall market will expand due to the elasticity of data and telecom services regaining lost wallet share. “Jio enjoys an edge in terms of capacity (4.7x of industry) and quality offerings will enable it to achieve 50 percent revenue market share and EBITDA margin of over 50%.”
Motilal Oswal expects Jio to achieve EBITDA break even in FY19 and have a revenue market share of 22% in the next five years with Rs 110/share discounted cash flow value on the back of 123 million subscribers and an average revenue per user of Rs 250.Disclosure: Reliance Industries, the parent company of Reliance Jio, owns Network 18 that publishes Moneycontrol.com.
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