Reliance Jio Infocomm's strong earnings for the October-December quarter were buoyed by its surprisingly strong average revenue per user (ARPU) and a sharp fall in the interconnect fee, analysts said.
They, however, expect Jio's ARPU, a critical performance indicator, to likely fall in the current quarter as the telecom operator had recently cut prices.
Jio reported a net profit of Rs 504 crore for the October-December quarter, versus Rs 306 crore by market leader Bharti Airtel. Its ARPU atRs 154 was 25% more than that of Airtel's Rs 123 for the period. Revenue rose nearly 12% sequentially to Rs 6,879 crore.
In a quarter when the company signed up 21.5 million new users, Kotak Securities said, "Jio's higher-than-expected revenues were driven by the surprisingly modest on-quarter decline in its monthly ARPU to Rs 154 in the December quarter from Rs 156 reported in the July-September period that had included apportionment of recharges from the fiscal first quarter."
The brokerage expects Jio's ARPU to dip in the ongoing fiscal fourth quarter following its recent tariff cuts.
Emkay Research said the strength of Jio's third-quarter performance was underlined by the fact that revenue was purely from earnings in the three-month period, with no spillovers from the second quarter ended September.
The Mukesh Ambani-owned telco, which has upended the market since its commercial launch in September 2016, has swung to a profit within 15 months of its commercial launch.
Jio, which has a lower user base of some 160 million compared with Airtel, Vodafone India and Idea Cellular, is a net payer of interconnect usage charge (IUC) — the fee that an operator needs to pay on calls originating on its network and ending on those of others.
The sector regulator's decision in October to cut IUC to 6 paise per minute from 14 paise led Jio's quarterly payout on that front falling toRs 1,082 crore from the Rs 2,140 crore in the September quarter.
Airtel — whose consolidated net profit plunged 39% from a year earlier to Rs 306 crore, with a 34% fall in operating earnings and 22% drop in India mobile business revenue — said the decrease in IUC reduced its gross revenue by Rs 1,061.5 crore and mobile ARPU by Rs 16 in the December quarter. The telco, with some 290 million subscribers, lost IUC on a net basis.
Analysts said the 82% sequential jump in Jio's earnings before interest, tax, depreciation and amortisation to Rs 2,628 crore was helped by strong revenue growth, backed by the addition of new users, and the reduced IUC.
Nitin Soni, a director at global rating frim Fitch, said: "It is very evident that the steep reduction in IUC has boosted Jio's overall financial performance, but it remains baffling that market leader Airtel now has an ARPU that is 25% lower than Jio's."
Soni, however, said Airtel's sharply lower ARPU "suggests there is room for growth for incumbent carriers on this key performance metric over the next 6-12 months".
According to Kotak, Jio has indicated that out of its reported ARPU of Rs 154, as much as "Rs 139 pertains to the Rs 459 plan (with 84 days validity) initiated during October, Rs 10 from Jio Prime apportionment (including higher contributions from new customers) and a mix of higher tariffs and top-ups by a section of customers".
Brokerage Emkay said, "A majority of Jio's recharges in the fiscal third quarter was for its Rs 399 and Rs 449 tariff plans."
Analysts said Jio's December-quarter earnings were also helped by "low finance costs", compared to that of Airtel.
They expect Jio's operating costs to rise in the next two-three quarters as it launches more services such as fibre-to-the home and enterprise services, trials for which are underway in some cities.
That could, however, be partly offset by the integration of Reliance Communications' tower assets, which would result in lower cost as "rental of Rs 13,000 per month (per tower) would not be applicable, as maintenance, rental and other operational costs would now be part of Jio's capex".
Last month, Jio signed a definitive agreement to acquire some wireless assets, including spectrum, towers and fibre, of RCom forRs 22,000-24,000 crore.