Jio's maiden net profit in Q3 'bit too good to believe':Report

Investment research firm Bernstein has questioned Reliance Jio reporting its first ever profit within a year of commercial operation, saying the profit was the result of following a "unique" accounting approach, a claim the Mukesh Ambani-led firm has strongly refuted.

While Bernstein said it was "somewhat dumbfounded" by the Rs 504 crore profit reported in October-December quarter as it was "bit too good to believe", Jio questioned the motive of the report, saying it was never contacted for any clarification.

The Bernstein report claimed that Jio's reported profit is due to a "unique approach" to depreciation and amortisation which results in significantly lower expense than seen elsewhere in the industry.

"However, despite the success in attracting users, we have been somewhat dumbfounded by their announcement they had reached profitable operations," it said.

"As we have said many times over, telecommunications is a game of scale, and despite the incredible trajectory in subscribers Jio has achieved, we have never seen a new entrant reach sufficient scale in such a short amount of time," said the Bernstein report dated February 2.

The "unique approach" led to Jio booking Rs 1192.6 crore depreciation and amortisation charge in the third quarter, which using the method used by other telecom companies would have quadrupled and the company would have reported loss of Rs 2,410 crore. The loss in Q2 would have been Rs 2,700 crore, the report claimed.

Instead, the company reported that their small loss in Q2 (Rs 270 crore) had improved to a profit of Rs 504 crore in Q3 of 2017-18, said the Bernstein report which claimed to have done a deep dive comparing the cost structure of Jio, Idea and Bharti with those of other global telcos.

In response to an email query by PTI, Jio said its accounting statements are based on the applicable Indian Accounting Standards.

"The accounting treatment has been reviewed and approved by the audit committee of the company and also specifically reviewed by the auditors," Jio said.

The newcomer further said that it is depreciating only the wireless assets as they have been put to commercial use, and other assets have not yet been capitalised.

"We fail to understand the underlying motive behind this report. No attempt has been made by the analyst to seek any clarifications from the company. We are unable to comment on the specifics of the computations or restatements in the report," Jio said in an emailed response.

Meanwhile, the Bernstein report titled 'Did Reliance Jio turn a profit in only their 6th quarter since launch?' said: "While we don't want to take anything away from the amazing achievements Jio has delivered the company has 'reset' what it means to be a disruptor in the telecom sector we find the result a bit too good to believe".

Jio's profit, it said, may be due to favourable tower- sharing deals with Reliance Infratel, reduced interconnect fees and accounting methodology for depreciation which "stands out as an anomaly" when compared to peers.

Last month, Reliance Jio posted its first-ever net profit of Rs 504 crore for the three-month period ended December 2017, the second quarter of commercial operations.

The company had incurred a loss of Rs 271 crore in the September quarter.

The revenue from operations came in at Rs 6,879 crore, an 11.9 per cent growth over the previous quarter.

The earnings before interest, tax, depreciation and amortisation (EBITDA) - at Rs 2,628 crore - was 82.1 per cent higher than the sequential quarter.

Jio's subscriber base as on December 31, 2017 stood at 160.1 million.

Commenting on the results on January 19, Mukesh Ambani, Chairman and MD, Reliance Industries had said in a statement: "Jio's strong financial result reflects the fundamental strength of the business, significant efficiencies and right strategic initiatives".

Jio, he had said, demonstrated that it can sustain its strong financial performance.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel