Mr. Avishek Datta - Research analyst at Prabhudas Lilladher Pvt Ltd.
- Jio to garner connectivity and IOT revenues of Rs230bn by CY24 end along with significant share of growing enterprise market (3x to Rs750bn).
- Prized 700MHz spectrum acquisition to accelerate Jio's 5G launch plan, as they can target 80% of target market with just 1lacs towers.
We hosted a telecom expert to better understand India's evolving telecom landscape, post completion of 5G auctions. Key highlights of the call were 1) Industry tariff hike of Rs60/mon (18-25%) likely before year end, to make up for high spectrum capex 2) By CY24 end Jio can expect revenues of Rs230bn from connectivity and IOT, then take a significant share in enterprise business (industry size likely to increase 3x to Rs750bn by FY25E ) 3) capex is likely at Rs200bn, including spectrum payment of Rs78bn p.a 4) company will likely go for pan India 5G launch vis-à-vis more gradual roll-out for peers, thereby attracting premium customers.
Jio's growth prospects look promising led by subscriber addition post churn and regular tariff hikes. We leave Jio estimates unchanged and will review them post 5G launch. Reiterate 'BUY' at TP of Rs3165. RIL is our preferred pick given dominant position across business verticals.
5G to power Jio ahead of peers: Jio is better placed in the industry than its peers to offer differentiated services:
- Industry is likely to increase tariffs by Rs60/mon before year end to recover spectrum cost. Jio's 28 day 1.5GB/day plan cost likely to rise to Rs299 while Airtel's comparable plan tariff likely to rise to Rs330 (effectively current plan is Rs279).
- Availability of prized 700MHz spectrum will mean Jio has to upgrade only 1lac out of 3.5 lacs towers to cater to 80% of target 5G opportunity in India, while peers have to upgrade higher number of towers.
- Jio's subscriber share is likely to increase to ~42% by CY24 end from Q4 levels of 35.4%, as they target customer base of 470m.
- Jio revenues from connectivity will likely be at Rs170bn by CY24 end, which will include migration of high end customers from competitors due to superior user experience (Rs110bn), and balance from normal upgrade to 5G smartphone.
- Jio will likely target IOT revenues of Rs60bn from 100mn devices by CY24E, based on order enquiries pipeline.
- Jio is working on creating multiple platforms on enterprise segment to target education, automation, robotics, agriculture etc. and generate significant chunk of revenues from the segment.
- Industry data usage to increase 2.2-2.5x to 50GB/mon in-line with global trends, while revenues rise 1.5x.
- Peers have to buy significant amount of spectrum as only 35% of Bharti's towers are fiberized, while its 20% for Vodafone Idea (Vi) and 70% for Jio. In the absence of fiberized towers significant spectrum is required, given data usage on 5G is significant.
- Jio's capex is likely at Rs200bn and includes Rs125bn for upgrade of 50k towers. Airtel and Vi is likely at Rs80/50bn, as they take a cautious approach to upgrade towers gradually.
5G auction to further skew the telecom market in favour of Jio: India's 5G auction has concluded with total of 51GHz of spectrum being auctioned for Rs1.5trn. Leaders Jio and Bharti have acquired 87% of spectrum at Rs881bn and Rs430bn respectively. Jio has acquired much coveted 700MHz for Rs397bn thereby providing an edge over Bharti in terms of superior network coverage. Jio has highest spectrum holding at 26,772MHz post acquisition of 220 MHz in the 700 MHz band, 2,440 in the 3.3GHz band and 22,000 MHz in the 26 GHz band.
Shares of Reliance Industries Limited was last trading in BSE at Rs. 2571.40 as compared to the previous close of Rs. 2605.80. The total number of shares traded during the day was 190556 in over 12523 trades.
The stock hit an intraday high of Rs. 2617.65 and intraday low of 2535.00. The net turnover during the day was Rs. 489577298.00.