Reliance Jio, India’s largest telecom operator by market share, would require two tariff hikes in the range of 15-20% over the next three years to close the gap with peer Bharti Airtel on the average revenue per user (Arpu)-level, according to analysts.

Analysts expect Jio’s Arpu to touch Rs 235 by FY27 on the back of tariff hikes and improving subscriber mix. On the other hand, Airtel’s Arpu is expected to be at Rs 286 in the next three years.

The same assumes significance in the sense that despite reporting the January-March quarter earnings in line with analysts’ estimates, Jio’s Arpu at Rs 182 has been flat sequentially for the last three quarters.

Analysts at JP Morgan said, Jio’s Arpu deflated owing to early success in JioBharat feature phones at lower priced plans. Besides, 5G availability at free of cost is severely curtailing 4G data topups.

Jio’s 5G subscribers has touched 108 million. Its 5G network now carries 28% of its wireless data traffic. This means that 28% of data traffic is being offered by the company free of cost to the users.

“Given that 5G is being offered for free, Arpus have limited room to expand without tariff hikes,” said analysts at Jefferies.

“We raise our Arpu estimates by 1-2% and expect Arpus to rise at 9% CAGR (compound annual growth rate) over FY24-27 to Rs 235 by FY27,” Jefferies said.

Analysts expect a tariff hike of 20% post elections in the July-September quarter of FY25 and another similar hike in FY27.

For Jio, which has been focusing on gaining subscribers at the moment, a tariff hike is crucial given that the company’s free cashflow turned negative Rs 15,100 crore in FY24 due to a sharp rise in cash interest costs to Rs 13,600 crore. Besides, the company’s network capex rose 60% YoY to Rs 41,000 crore.

Besides, the company’s return on capital employed (ROCE) deteriorated further to sub-6% levels due to higher investments and absence of 5G monetisation and tariff hikes.

Analysts said the company’s ROCE may improve as it monetises the fresh spectrum investments over the next 1-2 years.

“While accrual capex should come off going forward, we expect cash capex to stay elevated in FY25 as capex creditors unwind further,” said IIFL Securities in a note.

According to IIFL, tariff hikes would help Jio shore up its return ratios in the run-up

to the likely IPO of Jio Platforms in 2025.

Jio Platforms, the parent company of telecom operator Reliance Jio, on Monday reported a 2.5% quarter-on-quarter (QoQ) growth in its net profit to Rs 5,583 crore for the January-March quarter.

Consolidated revenue from operations during the period rose 4.2% QoQ to Rs 28,871 crore on the back of subscriber additions, growth in data and voice consumption.

The company’s net debt was at Rs 1.61 trillion in FY24. “RJio’s net debt continues to rise on higher capex investment and cash finance cost,” said ICICI Securities in a note.

Reliance Jio added 10.9 million subscribers during the quarter. At the end of  March quarter, total subscribers were at 481.8 million, up from 470.9 million million as of December end.

Analysts said strong subscriber additions for Jio bode well for the tariff environment, and 5G monetisation in the mobile segment.

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