Reliance Jio, which debuted in September 2016, will become the largest contributor to Reliance Industries’ earnings by 2021, surpassing bulk earners petrochemicals and refining.
According to Kotak Institutional Equities (KIE), Ebitda (earnings before interest, tax, depreciation and amortisation) from RIL’s digital services will be an estimated 34% at Rs 42,100 crore. KIE estimates that RIL’s consolidated Ebitda will be an estimated Rs 1.2 lakh crore by 2021.
The Ebitda margin for the digital services segment will be a staggering 53.4%. As per the assumptions, revenue from the segment will be to the tune of `78,800 crore.
In comparison, while petrochemicals will likely contribute Rs 38,400 crore to Ebitda by 2021 and Rs 33,900 crore by refining and marketing segment, the once-prolific oil and gas segment’s contribution will be a meagre Rs 900 crore.
The organised retail sector is also expected to contribute Rs 8,500 crore to Ebitda by 2021.
On Thursday, Reliance Jio posted a profit of `831 crore during the October-December quarter, up 22.1% sequentially. In comparison, RIL’s net profit was up 8.8% albeit at a much higher base.
Jio is adding a large number of subscribers every month which makes up for its low cost tariffs, and analysts say this is the reason Jio is adding to its revenue flow.
“We have modelled generous assumptions for Jio, assuming cumulative subscriber base to increase to a substantial 465 million by FY2021 with an Arpu (average revenue per user) of Rs 150/month,” Kotak said in its report.
Jio has been quite aggressive with its capex as the Rs 14,000 crore spent by it in the third quarter is higher than Goldman Sachs’ FY19 estimate for Vodafone Idea. “Jio’s focus in the near term remains on adding subscribers, and the company said it would not tinker with tariffs and risk disrupting their strong subscriber momentum. For incumbent telcos, this could mean revenues staying stagnant until Jio reaches its earlier stated target of more than 400 million subscribers,” Goldman Sachs said in its report on Jio’s October-December earnings.
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Jio continued its strong subscriber growth trend with net addition of 27.9 million subscribers during the December quarter though it was lower than 37 million in the preceding quarter. This was mainly due to a Supreme Court ruling prohibiting usage of Aadhaar for biometric verification. Its gross adds stood at 32.7 million and total subscriber base at 280.1 million.