Q2FY24 Review: JIO on a sub add streak; 5G capex close to peak in Indian Telecom sector

30 Oct 2023 , 11:59 AM

JIO’s 3% QoQ Ebitda growth in Q2FY24 was in line with estimates. While JIO has seen steady acceleration in sub adds through the last four quarters, ARPU uptick has been modest and est. mobile revenue grew 2.7% QoQ. Its 5G unique location count has crossed 150k, covering >80% of its Dec’23 target. In the past 12 months, analysts of IIFL Capital Services estimate JIO’s 5G investment at Rs1.53trn, >75% of its Rs2trn target. This suggests that accrued capex is close to its peak, but cash payouts may rise in future as most of the estimated Rs430bn capex creditors unwind. Despite rapid 5G rollout, JIO’s NW opex and interest expenses have been steady, suggesting that these are largely capitalised. JIO’s focus now shifts to the rollout of JIO AirFiber and scaling up JIO Bharat Phone (which has seen 2.5mn units sold since launch, as per analysts of IIFL Capital Services channel checks); as the company attempts to make inroads at the bottom of the pyramid. Analysts of IIFL Capital Services expect 4G pre-paid tariff hikes only in FY25 and largely maintain estimates. Their EV estimate rises from US$89bn to US$91bn, after rolling forward to Dec’24. 

Subs adds and data traffic growth strong; ARPU uptick modest: 

JIO’s subscriber growth has seen consistent acceleration in recent quarters. 5G data traffic now accounts for >15% of the overall data traffic. JIO’s 150k+ 5G unique locations cover ~45% of 4G footprint and >80% of its Dec’23 target. After Rs78bn spectrum instalment, H1 FCF was almost nil. Net debt-to-TTM Ebitda came down to 3.3x. 

Est. 5G accrual capex crosses 75% of target; vendor credit builds up: 

Analysts of IIFL Capital Services look at the cash capex (ex-spectrum) and rise in capex creditors in the past 12 months as a proxy for accrual-based 5G equipment capex. This comes to ~Rs650bn. After adding ~Rs880bn spectrum spend in Aug’22 5G auctions, total 5G investment comes to ~Rs1.53trn; >75% of Rs2trn target set by JIO. 

Analysts of IIFL Capital Services maintain Ebitda; new EV is US$91bn: 

Surge in data traffic led by 5G has not resulted in an increase in ARPU, since 5G plans above Rs239 offer unlimited data allowance. As 5G network fill-factor rises, analysts of IIFL Capital Services expect telcos to introduce daily data limits; which should aid monetisation. Analysts of IIFL Capital Services project 19% Ebitda Cagr for JIO over FY23-25, led by ARPU improvement and market-share (MS) gains.