While Reliance Industries’ (RIL) results for Q4FY17 went down well with the Street, the ‘effective’ consolidated net debt of Rs 2.24 lakh crore, a spectrum-related write-down of Rs 12,000 crore and the possibility of capital expenditure remaining elevated are causing some concern.
RIL’s ‘effective’ consolidated net debt increased to Rs 2.24 lakh crore as of March 31, 2017, expectedly higher than the reported net debt of Rs 1.19 lakh crore due to significant capex creditors of Rs 61,000 crore and deferred liabilities of Rs 20,100 crore, according to Kotak Institutional Equities. On Monday, the management had said the company’s net debt was in the region of Rs 1.2 lakh crore.
The write-downs of Rs 12,000 crore relate to revaluation of spectrum (primarily 2.3 GHz) and unified licence fees. The assets and equity in Reliance Jio have been written down as part of its transition to Ind-AS accounting norms, analysts at Jefferies noted.
They also observed that capex in the quarter remained high at Rs33,000 crore ($5.1 billion) including Rs 19,000 crore in Jio and Rs 12,000 crore in standalone including downstream projects. “This is surprising given we estimate US$1bn+ of translation gains on account of rupee appreciation,” they wrote.
Given that the capex at the conglomerate is expected to remain high — an estimated $2.5 billion or slightly lower, excluding Jio and Rs 19,000 crore of capex for Jio in Q1FY18, more or less in keeping with the current run rate — the net debt could remain elevated.
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“For Jio capex in 1QFY18 is likely to be similar to 4Q and decline thereafter. As a result, we believe capex in Jio is likely to exceed Rs300bn (US$4.5bn) implying total capex of at least US$7bn,” analysts at a foreign brokerage observed. With the competitive intensity in the sector expected to persist, capex at Reliance could continue at accelerated pace, according to Motilal Oswal.
“Jio has over 1,00,000 sites (telecom towers), with about 65% coverage currently. Management targets to reach over 95% population coverage by FY18 with an additional 100,000 sites,” the brokerage noted. RIL has so far invested approximately $27 billion in Jio. The company said on Monday that Jio had signed up109 million subscribers. “Contrary to expectations, Reliance did not provide any updated number for its Jio Prime subscribers over and above the 72mn+ shared earlier,” analysts at Jefferies wrote, adding the management indicated that it will provide monthly updates of this to TRAI.