Reliance Industries Ltd (RIL) is a behemoth when it comes to Total Income numbers with an annual figure of close to Rs.4,50,000 crores, which translates into an average Quarterly number in excess of Rs.1,00,000 crores. About 70% of RIL's Total Income comes from it's huge Refining business, 20% from it's Petrochemicals business and the rest 10% is contributed by it's Oil & Gas business and it's Retail business combined. On the Net Profit front, RIL does about Rs.5,500 crores on a Quarterly basis and about Rs.22,000 crores annually. Most of the Net Profit comes from Refining & Petrochemicals businesses. Oil & Gas business is around the break-even level at a Net basis and the Retail business has just broken-even at an Operating level.
With RIL's biggest & most ambitious investment in any new business set to start it's journey anytime now, let's try & build some estimations on how it's financials in the first few quarters will be & what will be it's impact on RIL's consolidated numbers. The preparation for the journey is almost complete with RIL already having invested close to $11 billion in acquiring spectrum in 2300 MHz & 1800 MHz bands and building network infrastructure across the country and setting up Data Centers at several different locations to handle the huge amount of Data Traffic expected to travel on it's 4G LTE network. Until the company starts commercial operations of it's 4G services, all it's expenses related to that business will be Capitalised & will be considered as CAPEX. As soon as the 4G services are launched, the regular Profit & Loss account will be prepared for that business.
As per media reports, RelJio is expected to have a Network coverage in about 5000 cities & towns and another 4,00,000 villages within a few months of launch, if not at the start itself. This coverage is not much less than the kind of coverage that Airtel or Vodafone or Idea Cellular have at the moment, after being in the business for nearly 2 decades. Let's say that RelJio's expected coverage is about 75-80% of the coverage of any of the Top-3 operators. RelJio is also expected to have set up over 1,00,000 BTSes, most of them on Rented Towers. Compare that to a number of about 1,45,000 BTSes active on Airtel's Network. So, in terms of Network Operating Costs, we can expect RelJio's costs to be about 70% of Airtel's costs. Taking Bharti Airtel's latest Quarterly numbers as a reference, the Operating Costs + Employee Costs for RelJio could be in the region of Rs.3000 to 4000 crores per Quarter. So RelJio will be able to break-even at an EBITDA level as and when it manages to generate a Quarterly Revenue of around Rs.4000 - 5000 crores.
Now the question is: By when will RelJio be able to generate revenues of around Rs.5000 crores on a Quarterly basis?
As per media reports, RelJio's plans involve being more than just a Wireless Data service provider. RelJio already has acquired lots of content that it will offer it's customers over it's Fibre network as well as it's 4G LTE network. It includes Television services, Movies on Demand, Episodes of popular TV Serials/Shows on Demand, possibly even Educational services where Live or Recorded lectures of certain courses from certain institutes can be accessed sitting at home. Infact a reliable High-speed Internet backbone can be used to provide services in various categories like Entertainment, Education, Security, Healthcare, etc. With the advent of 4G networks, we could see more & more people using Video-call services as well. The point I am trying to make here is that considering RelJio's plans, the ARPU (Average Revenue Per User) per month for the company will be much higher than what other operators enjoy. I am expecting RelJio's ARPU to be atleast around Rs.700 per month.
The main target customers for RelJio are the ones who are currently using 3G services or USB Dongles. They are currently giving substantial revenues to existing operators. They are the ones who will shift to using RelJio's services. On a conservative side we can expect between 1 to 2 million customers to take up RelJio's 4G connection every month. Initially most of them will be buying the 4G MiFi device, which can support upto 10 WiFi devices at a time. There are millions & millions of Smartphones, Laptops & Tablets with customers across the country, which do not support 4G network, but can use WiFi services. RelJio will be targeting all these customers with the MiFi device. At the same time we are already seeing 4G Smartphones being introduced in India and many more are on the way in coming months. It will take atleast 6 to 9 months for the 4G Smartphones to get popular amongst the buyers.
To calculate the EBITDA Break-even point for RelJio, I have kept my estimates simple & conservative. I have estimated a monthly addition of 1 million new customers & an ARPU of Rs.700/- per month. That will mean a recurring revenue addition of Rs.70 crores every month. At this rate, RelJio should be close to EBITDA break-even in about 6 to 8 Quarters time.
During the First Operating Quarter for RelJio ( RJIL - Reliance Jio Infocom Ltd ), the company is expected to post a mammoth EBITDA as well as Net Loss. The EBITDA Loss could be to the tune of over Rs.2500 crores and Net Loss could be in excess of Rs.4500 crores. In addition to the EBITDA Loss, there will be things like Depreciation, which is expected to be to the tune of atleast around Rs.1500 crores, and Interest Cost, which is expected to be well in excess of Rs.500 crores. Hence as & when RJIL launches it's 4G service, the first quarter is expected to be the biggest Pain Quarter for Reliance Industries Ltd's Quarterly result. RIL's Consolidated Net Profit could get wiped out to the extent of 80 to 90% in the first quarter. But the Pain will reduce with every passing quarter as the Revenues build up at a handsome pace. Eventhough RJIL is expected to Break-even at an EBITDA level within 6 to 8 quarters, it will continue to post Net Loss for 3 to 4 more quarters after EBITDA break-even. So, RJIL's financials are expected to have a negative impact on RIL's Quarterly numbers for about 8 to 10 Quarters, with the impact being the maximum in the initial quarters and reduce substantially with every passing quarter.
For RJIL to take rapid strides on the subscriber acquisition front & on the Revenues chart, it will have to do a stellar marketing of it's services and offer a good service experience to all the customers joining their network. The initial months will be full of euphoria but after that it will be the marketing & word-of-mouth that will enable the company to pile up new subscribers & revenues. Let's see how & when things unfold, but please be prepared to see a negative impact on RIL's Quarterly results initially because of RJIL's Financials.
With RIL's biggest & most ambitious investment in any new business set to start it's journey anytime now, let's try & build some estimations on how it's financials in the first few quarters will be & what will be it's impact on RIL's consolidated numbers. The preparation for the journey is almost complete with RIL already having invested close to $11 billion in acquiring spectrum in 2300 MHz & 1800 MHz bands and building network infrastructure across the country and setting up Data Centers at several different locations to handle the huge amount of Data Traffic expected to travel on it's 4G LTE network. Until the company starts commercial operations of it's 4G services, all it's expenses related to that business will be Capitalised & will be considered as CAPEX. As soon as the 4G services are launched, the regular Profit & Loss account will be prepared for that business.
As per media reports, RelJio is expected to have a Network coverage in about 5000 cities & towns and another 4,00,000 villages within a few months of launch, if not at the start itself. This coverage is not much less than the kind of coverage that Airtel or Vodafone or Idea Cellular have at the moment, after being in the business for nearly 2 decades. Let's say that RelJio's expected coverage is about 75-80% of the coverage of any of the Top-3 operators. RelJio is also expected to have set up over 1,00,000 BTSes, most of them on Rented Towers. Compare that to a number of about 1,45,000 BTSes active on Airtel's Network. So, in terms of Network Operating Costs, we can expect RelJio's costs to be about 70% of Airtel's costs. Taking Bharti Airtel's latest Quarterly numbers as a reference, the Operating Costs + Employee Costs for RelJio could be in the region of Rs.3000 to 4000 crores per Quarter. So RelJio will be able to break-even at an EBITDA level as and when it manages to generate a Quarterly Revenue of around Rs.4000 - 5000 crores.
Now the question is: By when will RelJio be able to generate revenues of around Rs.5000 crores on a Quarterly basis?
As per media reports, RelJio's plans involve being more than just a Wireless Data service provider. RelJio already has acquired lots of content that it will offer it's customers over it's Fibre network as well as it's 4G LTE network. It includes Television services, Movies on Demand, Episodes of popular TV Serials/Shows on Demand, possibly even Educational services where Live or Recorded lectures of certain courses from certain institutes can be accessed sitting at home. Infact a reliable High-speed Internet backbone can be used to provide services in various categories like Entertainment, Education, Security, Healthcare, etc. With the advent of 4G networks, we could see more & more people using Video-call services as well. The point I am trying to make here is that considering RelJio's plans, the ARPU (Average Revenue Per User) per month for the company will be much higher than what other operators enjoy. I am expecting RelJio's ARPU to be atleast around Rs.700 per month.
The main target customers for RelJio are the ones who are currently using 3G services or USB Dongles. They are currently giving substantial revenues to existing operators. They are the ones who will shift to using RelJio's services. On a conservative side we can expect between 1 to 2 million customers to take up RelJio's 4G connection every month. Initially most of them will be buying the 4G MiFi device, which can support upto 10 WiFi devices at a time. There are millions & millions of Smartphones, Laptops & Tablets with customers across the country, which do not support 4G network, but can use WiFi services. RelJio will be targeting all these customers with the MiFi device. At the same time we are already seeing 4G Smartphones being introduced in India and many more are on the way in coming months. It will take atleast 6 to 9 months for the 4G Smartphones to get popular amongst the buyers.
During the First Operating Quarter for RelJio ( RJIL - Reliance Jio Infocom Ltd ), the company is expected to post a mammoth EBITDA as well as Net Loss. The EBITDA Loss could be to the tune of over Rs.2500 crores and Net Loss could be in excess of Rs.4500 crores. In addition to the EBITDA Loss, there will be things like Depreciation, which is expected to be to the tune of atleast around Rs.1500 crores, and Interest Cost, which is expected to be well in excess of Rs.500 crores. Hence as & when RJIL launches it's 4G service, the first quarter is expected to be the biggest Pain Quarter for Reliance Industries Ltd's Quarterly result. RIL's Consolidated Net Profit could get wiped out to the extent of 80 to 90% in the first quarter. But the Pain will reduce with every passing quarter as the Revenues build up at a handsome pace. Eventhough RJIL is expected to Break-even at an EBITDA level within 6 to 8 quarters, it will continue to post Net Loss for 3 to 4 more quarters after EBITDA break-even. So, RJIL's financials are expected to have a negative impact on RIL's Quarterly numbers for about 8 to 10 Quarters, with the impact being the maximum in the initial quarters and reduce substantially with every passing quarter.
For RJIL to take rapid strides on the subscriber acquisition front & on the Revenues chart, it will have to do a stellar marketing of it's services and offer a good service experience to all the customers joining their network. The initial months will be full of euphoria but after that it will be the marketing & word-of-mouth that will enable the company to pile up new subscribers & revenues. Let's see how & when things unfold, but please be prepared to see a negative impact on RIL's Quarterly results initially because of RJIL's Financials.
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