[What The Financials] Reliance Jio Profits, ARPU Up In Q2 Amid Steady User Growth

While coronavirus has changed life in a negative way for many this year, 2020 has definitely been a great year for Mukesh Ambani-led Reliance and Reliance Jio. Besides turning net-debt free, Reliance is also one of the most valuable Indian companies today. The growth had been spurred by Reliance’s digital business Jio Platform, which raised INR 1.52 Lakh Cr ($20 Bn) from marquee investors like Google, Facebook, Qualcomm and several Middle Eastern sovereign funds in just three months.

Beyond the investment, Jio Platforms has been basking in the glory of a massive spike in the user base of its growing network of digital apps. One of the biggest businesses in Reliance’s digital gig is its telecom unit Reliance Jio Infocomm, which became the biggest telecom network in India surpassing VI (Vodafone Idea) in October 2019.

The company’s financial performance for the financial year between April 2019 to March 2020 also saw similar growth.

Reliance Jio Infocomm has recorded a 33% growth rate in its revenue from INR 40.8K Cr in FY2019 to INR 54.5K Cr in FY2020. Though the company’s expense has also grown by 29% to INR 46K Cr, it has managed to widen its profit margins by nearly INR 2,600 Cr. The company had reported a profit of INR 2,982 Cr in FY2019 which has nearly doubled to INR 5,599 Cr in FY2020.

The company, on a standalone basis, has earned INR 54,403 Cr in FY2020 with an expense of INR 46,762 Cr, leading to a profit of INR 5,562 Cr.

Consolidated, Reliance Jio earned about INR 54,493 Cr from its operations, while the other INR 96 Cr were warned from other sources like interest on fixed deposits, gain on investments and other non-operating sources. The company had earned INR 40,876 Cr from revenue and INR 10 Cr from other sources in FY2019. The company’s operational revenue comes from sale of services.

The earnings shown above are from the consolidated financial statement of Reliance Jio Infocomm, which includes Reliance Jio Infocomm Pte. Ltd, Reliance Jio Infocomm USA, Inc, Reliance Jio Infocomm UK Limited, Reliance Jio Global Resources LLC.

The company seems to be on track to close out FY2021 with much higher revenue given its performance in FY2021 so far.

In the second quarter of FY2021, it reported a revenue of INR 17,481 Cr with a profit of INR 2,844 Cr. In Q1, the company reported INR 16,557 Cr in revenue.

Reliance Jio’s average revenue per user (ARPU) has gone up to INR 140, during Q1 of FY2021. The company’s ARPU rose to INR 145 in the second quarter of FY 2021, which by itself is a huge contribution to the revenue and profit margin given Jio’s massive user base.

Interestingly, Jio has a user base of 400 Mn (July) of the overall 504 Mn active internet users in India. All may not be Jio subscribers but it does own a major chunk of the market.

According to the Telecom Regulatory Authority of India (TRAI) report of July 2020, Reliance Jio holds a 35.03% share of the Indian telecom market with 78.09% active users. The company competes with Bharti Airtel with 3.26 Mn subscribers or 27.96% market share, and VI with 301 Mn subscribers or 26.34% shares. VI dropped from a market share of nearly 35.12% recorded in January 2019.

Over last year, Reliance Jio was the only telecom network, which consistently added subscribers monthly while others were losing. The Jio network had 280 Mn users in December 2018, growing to 376 Mn users by January 2020.

After taking over the telecom segment, Reliance Jio is now planning to lead 5G innovation in India. The company claims to have developed a complete 5G technology from scratch and is ready to be deployed once the 5G spectrum auction begins.

Where Has Reliance Jio Been Spending?

According to Reliance Jio Infocomm’s consolidated financial statement for FY2020, the company spent nearly INR 7,474 Cr on assets as depreciation, depletion and amortisation expense. Compared to last year’s INR 6,470 Cr, the company has noted a 15% hike in this asset-related expense. Finance cost was another major expense for Reliance Jio, where it spent INR 6,617 Cr versus INR 4,148 Cr spent in FY2019.

Along with this, the company reduced its employee benefits’ spent by nearly 11% from INR 1,742 Cr in FY2019 to INR 1,553 Cr in FY2020. For the fiscal year ended in March 2020, Reliance Jio has paid INR 1,395 Cr as salaries and wages, INR 88 Cr as staff welfare expenses and INR 70 Cr as a contribution to provident and other funds. Meanwhile, in FY2019, it paid INR 1,570 Cr as salaries and wages, INR 89 Cr as welfare expenses and INR 83 Cr for employee-related funds.

The company’s other expenses for FY2020 were at INR 31,264 Cr, which included INR 6,707 spent on power and fuel, INR 7,734 spent on rent, INR 1,146 Cr for repairs maintenance cost of assets and INR 212 Cr as after-sales expenses. The company also accounted INR 14,565 Cr as miscellaneous expenses, which includes INR 5,721 as spectrum charges and license fees.

During FY2020, the company’s legal charges grew 3x from INR 180 Cr to INR 566 Cr.

Just like other telecom companies, Reliance Jio too was liable to pay the adjusted gross revenue (AGR) dues in view of the Supreme Court judgment dated October 24, 2019. The company, in its financial statement, highlighted that it paid INR 195 Cr towards the liability in respect of license fees/spectrum usage charges for the period 2010-11 to 2018-19 and recognised the said expense as an Exceptional item INR 146 Cr (net of tax).

Jio Platforms Turn Profitable In First Year Of Operations

Earlier, Jio Infocomm’s parent entity Jio Platform (standalone) had recorded a revenue of INR 4.60 Cr during its first years of operations. The entity has recorded a profit of INR 4 Lakh with expenses of INR 4.56 Cr.

It spent INR 1.85 Cr as employee benefit expenses, INR 6 Lakh as depreciation and amortisation expenses and INR 2.65 as other expenses in the same time period. On a consolidated basis, the company reported a total income of INR 1.75 Lakh Cr and a profit of INR 2,520 Cr for the first quarter of FY2021.

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