Mukesh Ambani could launch his telecom firm Reliance Jio’s IPO this year for an enterprise value of nearly $100 billion, brokerage firm CLSA said in a research note. RIL’s telecom arm Reliance Jio may see an IPO / separate listing, after the recent 33% stake sale to 13 investors, including nearly 10% to Facebook and 8% to Google in 2020, CLSA analysts said. Reliance Jio is the country’s largest telecom service provider with a mobile subscriber base of 426.5 million at the end of October 2021, data released by TRAI showed.
Jio IPO major sector valuation catalyst
CLSA said the listing of Reliance Jio separately could be a catalyst for the telecom sector in India. “We believe likely Reliance Jio IPO will be a sector valuation catalyst with leader’s pre-IPO $20 billion deals valuation itself at 10x EV/Ebitda when our pick Bharti Airtel with leading Arpus (Average revenue per user) and 15% CAGR in consol Ebitda trades at 25% discount on EV/Ebitda,” it said. Analysts at CLSA value Reliance Jio at $99 billion EV at 11.5x EV/Ebitda, which includes $5 billion EV for JioFiber.
Jio vs Airtel
Reliance Jio is expected to have reached a total subscriber base of 435-438 million by the end of the October-December quarter according to brokerage firms. Whereas, second-largest telecom company Bharti Airtel is expected to report a total subscriber base of 318-323 million. However, in terms of ARPU, Bharti Airtel leads Mukesh Ambani’s Jio. ICICI Direct has pegged third-quarter APRU for Jio to be around Rs 151 per user, a 5% increase on a quarter-basis while Bharti Airtel’s ARPU is expected to be Rs 164, a 6.6% increase over the previous quarter.
In the previous year 2021, Reliance Jio controlled 39% of the telecom market share but in the July-September quarter, Jio lost 11 million subscribers, due to non-payment, following pandemic-led churn. “High inactive subscribers and lack of post-paid subs are challenges for the leader,” CLSA said. The brokerage firm added that in 2022 Reliance Jio’s launch of entry-level smartphone ‘JioPhone Next’, jointly developed with Google, could limit churn/conversion of incumbent 2G subscribers.
Telecom tariff hikes
Reliance Jio also announced tariff hikes for JioPhone Next and Jio in the month of November last year. “However with R-Jio prepaid tariffs still at 7-20% discount to Bharti and VIdea, we forecast 44% revenue share with 486 million 4G subs at ARPU of Rs 193 by the financial year 2024,” CLSA said. The firm is positive on the telecom sector, expecting revenues to grow, helped by tariff hikes, increased 4G penetration, and transition to 5G in 2022. Analysts also believe that any relief in AGR dues front would be a positive for the sector’s growth.