According to experts, Reliance Jio, India's largest telecom provider by market share, would need two rate rises in the region of 15-20% over the next three years to bridge the gap with rival Bharti Airtel on average revenue per user (ARPU).
Analysts predict Jio's Arpu to reach Rs 235 by FY27 as a result of pricing increases and improved customer mix. In contrast, Airtel's Arpu is estimated to reach Rs 286 during the next three years.
The same is significant in the sense that, despite reporting January-March quarter profitability in line with experts' expectations, Jio's Arpu of Rs 182 has remained unchanged sequentially for the previous three quarters.
According to JP Morgan analysts, Jio's Arpu has deflated due to early success in JioBharat feature phones with lower-cost contracts. Furthermore, the availability of 5G at no cost has significantly reduced 4G data topups.
Jio's 5G customers have reached 108 million. Its 5G network presently handles 28% of cellular data traffic. This means that the corporation provides consumers with 28% of their data traffic for free.
"Given that 5G is being offered for free, Arpus have limited room to expand without tariff hikes," noted Jefferies analysts.
"We raise our Arpu estimates by 1-2% and expect Arpus to rise at 9% CAGR (compound annual growth rate) over FY24-27 to Rs 235 by FY27," Jefferies said in a statement.
Analysts predict a 20% tariff hike following the elections in the July-September quarter of FY25, followed by another comparable increase in FY27.
Jio, which is now concentrating on attracting users, needs a pricing boost because the company's free cashflow went negative Rs 15,100 crore in FY24 due to a substantial increase in cash interest payments to Rs 13,600 crore. Moreover, the company's network capex jumped 60% YoY to Rs 41,000 crore.
In addition, the company's return on capital employed (ROCE) declined even more to levels below 6% as a result of increased expenditures, the lack of 5G monetisation, and tariff increases.
Analysts predicted that when the corporation makes money from the new spectrum investments over the next one to two years, its ROCE will increase.
IIFL Securities stated in a report that "we expect cash capex to stay elevated in FY25 as capex creditors unwind further, even though accrual capex should come off going forward."
Tariff increases, according to IIFL, would support Jio in bolstering its return ratios in the lead-up to Jio Platforms' anticipated IPO in 2025.
The parent company of telecom provider Reliance Jio, Jio Platforms, announced on Monday that its net profit for the January–March quarter increased by 2.5% on a quarter-over-quarter (QoQ) basis to Rs 5,583 crore.
The period's total operating revenue increased 4.2% QoQ to Rs 28,871 crore as a result of an increase in the number of subscribers and increases in voice and data use.
In FY24, the company's net debt was Rs 1.61 trillion. ICICI Securities stated in a report that "RJio's net debt continues to rise on higher capex investment and cash finance cost."
During the quarter, 10.9 million new users joined Reliance Jio. The overall number of subscribers increased from 470.9 million at the end of December to 481.8 million at the conclusion of the March quarter.
Strong Jio subscriber growth is encouraging for the price environment and 5G monetization in the mobile space, according to analysts.
