“We believe tariff hikes are unlikely till Reliance Jio is able to stabilize its subscriber additions. Our analysis suggests that that smartphone subscribers form an estimated 75% of Jio’s revenues, which is why we don’t expect Jio to be aggressive in this segment and maintain its 7-20% tariff discount. As a result, Jio could follow tariff hikes in the smartphone segment and we build a 10% tariff hike in 4QFY22 and 4QFY23,” it added.
Reliance Jio’s recent JioPhone plan that lowered the cost of ownership of JioPhones by 23-25% is a step in this direction. “However, we maintain that low-cost smartphones to upgrade JioPhone users coming out of their 3-year contracts will also be required to reduce churn.”
“Given our expectations of tariff hikes, we expect Reliance Jio’s ARPUs to expand to Rs159 by FY23, primarily driven by the smartphone segment. We expect limited ARPU increases in the featurephone segment,” it added.
Reliance Jio’s subscriber additions have moderated sharply in 2020 after the tariff hikes in Dec-19 driven by a fall in gross subscriber additions as well as rise in churn.
“In our view, this is being led by multiple factors, which include consolidation of sims at sector level, network congestion in some areas and churn among JioPhone users. Given Reliance Jio’s stated aspiration of gaining 500m subscribers which also feeds into the cross-sell opportunity it is creating on digital services and e-commerce, we believe its focus will more likely be on gaining subscribers,” Jefferies said.
Reliance Jio is expected to add 76 million subscribers to take its subscriber base to 492 million over FY21-23 driven by JioPhones and smartphone subscribers which will form 53% and 42% of subscriber additions. As a result, Reliance Jio’s subscriber market share will rise from 35% currently to 40% in FY23,
The brokerage believes Reliance Jio’s subscriber additions are more likely to come from the feature phone segment where JioPhones have a 22% share compared smartphone subscribers where Reliance Jio has near 50% market share.
Jio Platforms’ suite of apps and investments have potential to enable a digital ecosystem that could drive $2.5bn revenues for the company by FY25, Jefferies said.
The company’s investment in technology and digital services will help it monetize its “near 500 million subscribers better by generating multiple cross sell opportunities which will add value to its customers and to the company.”
Jio Platforms is building a digital ecosystem through its suite of applications that span Digital media, Ed-Tech, and eHealth as well as strategic investments in emerging technologies.
“Through its presence across digital media, Ed-Tech, and eHealth, Jio addresses a market of $6bn which is expected to grow 5x to $30bn by FY25. We estimate that Jio could potentially see revenues of US$2.5bn from these markets by FY25,” the brokerage said in its note.
Jefferies said that Jio’s focus will be on scaling up of JioFiber, Enterprise and digital services revenues. “We value the mobile business at 11.5x EV/EBITDA, non-mobile telecom business at 8x and potential digital services revenues at 6x EV/sales to arrive at our $90bn enterprise value.”