Brisk 5G rollout in Telecom sector: IIFL Capital Services

24 Jul 2023 , 11:54 AM

JIO’s 3% QoQ Ebitda growth in Q1FY24 was inline with estimates. Analysts of IIFL Capital Services estimate that mobile revenue growth was modest at 2.4%. JIO has nearly doubled its 5G unique location count in the past three months with >35% of its towers on 5G. They estimate that the corresponding proportion for Bharti is >20%. Despite rapid 5G rollout, JIO’s NW opex and interest expenses have been steady suggesting that these are largely capitalised. Analysts of IIFL Capital Services expect 4G prepaid tariff hikes only in FY25. The success of the recently launched JIO Bharat Phone is contingent upon JIO’s execution and the handset’s real-world performance. They assume 15mn/40mn subs on this handset by the end of FY24/25. While this barely moves the needle in FY24, FY25 Ebitda sees 3% upgrade. Analysts of IIFL Capital Services EV est. rises from US$85bn to US$89bn after rolling forward to Sep-24.

Modest revenue growth; rapid 5G rollout: 

JIO’s reported revenue grew 2.8% QoQ and analysts of IIFL Capital Services estimate 2.4% mobile revenue growth. They estimate that JIO’s mobile PB/day at 265 grew 7% QoQ led by 5G and IPL. JIO disclosed that it has rolled out 5G on 115k+ of its estimated 300k+ towers. Based on DoT data, analysts of IIFL Capital Services estimate that JIO’s 5G unique location count is now 2x that of Bharti. Both telcos have nearly doubled their 5G unique location count in the past three months. 

Focus on pan India 5G coverage before December 2023 and commencement of FWA: 

JIO reiterated that it would achieve pan India 5G coverage before December 2023. Its FTTH sub adds have seen an acceleration thanks to the Rs198 plan launched in March and thrust on LCO partnerships in lower tier towns (taking a leaf out of Bharti’s playbook). JIO will also commence 5G FWA rollout soon.

Analysts of IIFL Capital Services tweak FY24/25 Ebitda by 0%/+3%; new EV is US$89bn: 

They blended ARPU estimates for JIO for FY24/25 are Rs184/Rs206 vs. Rs181 in Q1FY24. While 5G plans priced above Rs239 currently offer unlimited data allowance, analysts of IIFL Capital Services expect JIO to introduce daily data limits once the capacity utilisation of the 5G network improves in the next 12- 18 months. This should enable better monetisation of 5G investments. Analysts of IIFL Capital Services project 20% Ebitda Cagr over FY23-25 led by ARPU improvement and market share gains.