Global rating agency Fitch does not see Reliance Jio, the new entrant in the highly competitive telecom space, gaining even 2 per cent of revenue market share in 2017 but will disrupt the industry with its aggressive pricing strategies.
“We expect Reliance Jio to gain less than a 2 per cent revenue market share in 2017, but to act a major price-disruptor,” it said in a note today. The top four existing telcos will consolidate their revenue market share by eating into the revenues of the smaller players, it said.
It can be noted that the Mukesh Ambani-led company has invested Rs 1.5 trillion for the service so far, and has earmarked another Rs 1 trillion capex by 2020, which has been launched with many firsts like free lifetime voice telephony and cheaper data prices. It is offering its services for free till end of the year.
Earlier this week, Ambani had asserted that Jio is a well thought-out venture and not a “punt”.
“First and foremost, it is no punt. It is a well-thought, well-executed, well-engineered ecosystem. It is a Rs 2,50,000 crore investment,” Ambani had said in a media interaction last week.
Fitch said the intense competition will weaken the credit profiles, and coupled with the high capital expenditure requirements, gave it a negative outlook.
The industry’s revenue growth could slow down to mid single-digit from 7-8 per cent in 2016 on lower data revenue growth, where it expects tariffs to fall by up to 20 per cent.
The pre-tax profit margins of the top four telcos, which stood at 34 per cent in 2016, will be hit by up to 2 percentage points, it said, attributing it to lower tariffs and increased marketing spend as data competition rises.
The free cash flows will be negative as cash generation is likely to fall short of capex requirements, the report said.
It said Rcom’s plan to demerge its wireless business is credit neutral – as the demerger will take away an equal proportion of debt and pretax profit from the company.
On its stable outlook for the Anil Ambani-led company, the company said it is based on the expectation that Rcom will use the proceeds from the sale of tower assets to improve leverage.