According to a recent report by ICICI Securities, Reliance Jio’s expenses, excluding regulatory costs such as license fees and access charges, rose sharply by 25 per cent on year-on-year (YoY) basis to Rs 266 billion in the financial year (FY) 2021, driven by a rise in network operating cost.
As per the report, this indicates that Jio’s payment to infrastructure investment trust (InvIT) is likely to rise over the next two-three years, and will keep pressure on incremental earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin.
Further, the report added that the network opex rose owing to a rise in the rental cost, power fuel cost, repair and maintenance, while other expenses (including fibre usage) were up by 178 per cent YoY to Rs 33 billion. In contrast, employee cost and selling and distribution (S&D) cost dipped 8.6 per cent and 8.2 per cent YoY, respectively. Meanwhile, Summit Digital logged a revenue, including rental and pass-through (energy cost) of Rs 82 billion, up by 10.3 per cent. This was lower compared to tower InvIT document disclosure which implied rental cost increase of Rs 14 billion in FY21 compared to Summit revenue rise of Rs 7.7 billion. Summit Digitel net debt dipped by Rs 36 billion to Rs 333 billion in FY21, but net debt to EBITDA is still high at 10.9x, ICICI report added.
Meanwhile, commenting on Jio’s revenue, the report said that revenues grew 28.7 per cent YoY to Rs 699 billion in FY21, while advanced received from Reliance Retail (adjusted for 18 per cent GST) rose 28.6 per cent YoY to Rs 628 billion. Further, Jio’s profit before tax (PBT) rose 111 per cent to Rs 161 billion in FY21; profit and loss effective tax rate was 25.3 per cent even as cash tax expense dipped 88 per cent YoY to Rs 1.4 billion. Meanwhile, depreciation cost rose 52 per cent YoY to Rs 66 billion in FY21; it is 5.8 per cent of the tangible gross block, as compared to Bharti Airtel’s standalone depreciation cost of ~7.7 per cent of gross block in FY20, the report added.
ICICI Securities expects inflation in depreciation to sustain for the next few years as cost normalises. Further, in FY22, amortisation cost would rise from spectrum acquired in March 2021 for Rs 571 billion. Jio’s capex was stable at Rs 143 billion (20.4 per cent of revenue) compared to Rs 148 billion capex in FY20 (27.2 per cent of revenue). The company has said it is near completion of 4G capex, which has led to a dip in capex intensity, the report added.
