Q3 performance: What gives Reliance Jio an edge over defensive Airtel

Reliance Jio’s reported net profit for the quarter ending December 2017 at Rs 5.04 billion was more than the consolidated net profit of Bharti Airtel at Rs 3.05 billion, and this includes the latter's Africa, direct-to-home (DTH) and enterprise services businesses. While the challenger continues to gain subscribers at a frenetic pace and at higher average revenue per user (ARPU), Bharti Airtel’s on the defensive is trying to protect its share. Notably, customers at Reliance Jio are spending 25 per cent more to avail its services as compared to Bharti Airtel.

Given that voice services are free, attractive data packs are making the difference — giving Jio the edge over Airtel. Further, a large voice-only base and down-trading from higher value packs led to a 12 per cent fall in revenues for Bharti Airtel, while Jio gained 12 per cent on the top line in the December quarter. The quarterly revenues for the sector is around Rs 400 billion, and this gives Jio an estimated revenue market share of 14 per cent garnered over the last three quarters when it started charging its customers. 

Bharti Airtel’s share is about 25 per cent. 

A cut in interconnect usage charge, steady ARPUs as well as stable costs have helped Jio to report operating profit margins of 38 per cent, which is 600 basis points higher than Bharti Airtel’s. The difference at the operating level is more stark if the numbers are compared with the estimated December quarter performance of Idea Cellular, which is yet to report its results. While both companies (Jio and Idea) will make similar revenues, Idea’s margins are slated to come in at 16.6 per cent. 

While Jio has indicated that its margins are a function of business efficiencies and scalable business model, analysts believe that a lot of its costs are capitalised as compared to peers, and thus does not show up in the profit and loss statement. Even then, Jio’s numbers are noteworthy. 

Nevertheless, Jio has outperformed Bharti Airtel in the December quarter and given its aggressive plans in fibre-to-home, content and media services, there is more trouble for the incumbents going ahead.

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