Telecom: Key takeaways from JIO and JPL FY23 ARs

21 Aug 2023 , 10:53 AM

Key takeaways from the FY23 ARs of JIO and JPL are: 1) While JIO’s network cost per tower remains lower than Bharti’s, both telcos are converging on this metric. 2) JIO capitalised Rs37bn interest in FY23, while analysts of IIFL Capital Services estimate that it capitalised Rs11bn opex. 3) They estimate that its equipment capex towards capacity/coverage enhancement rose 80% YoY to Rs380bn. 4) Net debt + liabilities-to-Ebitda rose from 2.45x as of end-FY22 to 3.68x as of end-FY23 – mostly on 5G spectrum purchases. 5) JIO’s FCF (before spectrum payout) jumped YoY from Rs70bn to Rs185bn on favourable WC swing and lower cash capex (even as JIO has extracted favourable payment terms from vendors, as seen in the Rs174bn increase in capex creditors during FY23). 

JIO’s rental/energy cost per tower gradually converging with Bharti’s: 

While JIO used to enjoy ~35% lower network cost per tower (including RoU depreciation + lease finance cost) vs Bharti three years back, this gap has now narrowed to ~10%. JIO’s S&D expenses jumped 65% YoY in FY23, due to MNP-related payouts; with industry discipline setting in, analysts of IIFL Capital Services expect this to stabilise going forward. Other costs continued to decline as % of revenue. 

Net debt and gross tangible assets rose; but effective borrowing cost down: 

JIO’s net debt and other liabilities rose sharply to Rs1715bn, largely led by Rs881bn spending in 5G spectrum auction. Even after adding capitalised interest, effective borrowing cost fell 290bps to 6.4% in FY23, as 5G spectrum debt comes at 7.2% interest rate. Analysts of IIFL Capital Services calculation suggests Rs380bn equipment capex towards capacity/coverage enhancement in FY23 — a sharp rise from Rs209bn in FY22. 

Other observations: 

1) FTTH home passes increased to almost 25mn vs 20mn a year back — similar to Bharti’s. 2) JIO seems to have capitalised Rs11bn (~120bps of revenue) during FY23. 3) Considering the rapid 5G rollout in H2FY23, Rs258bn cash capex ex spectrum in FY23 was quite low (FY22 cash capex was Rs228bn). During the year, there was Rs174bn increase in capex creditors to Rs259bn. 4) During FY23, tower and fibre SPVs repaid Rs309bn NCDs to RIL.