RelJio Tsunami coming in December'15.

Mukesh Ambani just spelled out the launch plans for Jio at Reliance Industries' AGM. First let me highlight the salient points mentioned:

* Jio is already present in all 29 states in 18,000 cities & towns. 80% countrywide coverage at the start.

* Jio currently undergoing testing, Beta launch in a couple of months and Full Commercial launch in December'2015.

* Jio network will be scaled up to 100% countrywide coverage in 3 years.

* Jio already has capability to serve 100 million customers, which will be scaled up further in coming years.

* Jio is working with OEMs to introduce 4G handsets from under Rs.4000 price point by December'15.

* Several apps are ready for launch, like JioChat (audio-video messenger), JioDrive (cloud storage), JioPlay (media & entertainment), JioMoney (digital wallet), etc.

* Jio has also applied for MSO license to offer broadcasting services over it's 4G & Fibre network.

......... More details & views will be added soon to this article.

Data Revenues - Now and the Next 2 years.

All telecom operators in India are currently dependent on the increasing Wireless Data usage to see their Revenues grow. The last 12-18 months have been the most exciting for all operators, especially the ones who have 3G operations in a decent number of circles. Until about 2 years ago, the CDMA operators (i.e. Reliance Communications & Tata Teleservices) were enjoying a rapid increase in their revenues from Wireless Data services because they were able to launch high-speed internet services using EVDO technology, which was primarily used via USB dongles. The subscribers of these services were giving reasonably high monthly revenues, mostly in the range of Rs.500 to 1000/- and their monthly usage was in the range of 2GB to 10GB. But the CDMA operators had introduced the EVDO network in limited number of urban centres in every circle and the monthly subscriber additions were only in a few thousands.

Over the last 2 years we have seen all 3G license holders expand their networks at a ferocious speed. Now we have 3G networks in hundreds of cities & towns in every circle and even major highways have been covered. People started using 3G services for PCs via USB/WiFi dongles as well as in their Smartphones. Every month lakhs on subscribers started using 3G services and now we have nearly 20% of the total mobile subscriber base of all 3G operators using the Data services. Initially the Average Monthly Data usage per subscriber was less than 400 MB, but it has been rising with every quarter and it is close to 700 MB now. This trend of increasing usage will continue for a long time to come. The Smartphone penetration is increasing and people have started using it not just for communication & social networking, but also for entertainment via watching videos, TV shows and live matches. All this added to the fact that Internet usage is quite addictive in nature, we will see more & more people using more & more Internet with every passing quarter.

Coming to the Revenues part, FY'15 was quite a landmark year, where most operators posted nearly 60-75% increase in their revenues from Data services on the back of near doubling of Data volumes on their networks. As per my estimates, the mobile industry generated around Rs.35,000 crores in Total Data Revenues in FY'15, translating in over 15% of it's overall Total Revenues. A year ago this number was well under 10%. Bharti Airtel leads with around 22% market share and FY'15 Data revenues of about Rs.7800 crores. Vodafone mostly holds the 2nd position with about Rs.7000 crores and 20% market share. These 2 operators along with Idea Cellular, together command over 55% market share currently. Other details as per my Estimates are mentioned in the Table alongside. Let us now focus on how things could progress over the next 2 years.

The biggest change that will happen in FY'16 for the Wireless Data business is the entry of Reliance Jio Infocom with it's 4G services. It has been delayed to quite an extent, but the company will have to introduce the services latest by Q2 of this fiscal. Initially the services will be launched in limited number of cities across the country, but will be rapidly expanded to take it to nearly 5000 cities & towns over the next 12-24 months. Since the company will have limited urban coverage and action for less than 9 months of this fiscal, I have estimated RelJio to capture about 8% market share in FY'16 with Total revenues of about Rs.4000 crores. With the entry of RelJio, it is widely expected that all the existing operators will experience a substantial slowdown in their growth as a section of their subscriber base will certainly shift to the new 4G operator. RelJio is expected to have the widest 4G coverage in India and also offer the most competitive tariffs, which will certainly attract the usage of heavy Data users across the country.

Coming to tariffs, operators like Airtel & Idea have declared in their quarterly reports that the net realisation is close to 25 paise per MB, which translates into a rate of about Rs.250 per GB. The same must be true for Vodafone. These three operators together offer 3G services almost across the country with the widest coverage in every circle and best quality subscriber base and hence charge slightly premium rates. The 2nd rung of operators like Reliance Communications, Aircel and TTSL (RAT) are now trying to play catch-up with the trio of larger operators (AVI). They are enhancing 3G coverage rapidly in their respective circles and are also looking at tying up internal roaming agreements to offer a near All-India 3G coverage to compete with AVI. The trio of RAT is trying to attract subscriber attention by offering an effective rate of well under Rs.200 per GB. With increasing coverage, they are certainly seeing success with traffic & revenues shooting up in recent quarters.

When RelJio launches, we could see further aggressive pricing with effective rates of under Rs.150 per GB for lower plans and going down to under Rs.100 per GB for higher plans. Initially RelJio is expected to target households with good Smartphone presence. Imagine a family with 4 members with almost everyone using a Smartphone. If RelJio offers them WiFi routers with plans like 10GB for Rs.1000/- or less per month, will the family not consider it as an attractive offer? I am sure there are lakhs of such households which will grab such offers. Then there are lakhs of SMEs which need internet connectivity for their business operations, which will also take to RelJio's services via WiFi routers. Initially the WiFi routers will form the biggest business segment for RelJio because their sim cards will not work in over 95% of the Smartphones currently in use as they don't work on 4G LTE networks. 4G LTE smartphones are now getting launched at a rapid pace, but for it's penetration to increase to respectable levels will take another year or two easily.

By the end of FY'17, we could see RelJio's subscriber base to be anywhere between 20 to 40 million with an ARPU anywhere in the range of Rs.400 to 700 per month. Depending on the success of RelJio's services, competition will have to react and reduce their effective tariffs to avoid most of their premium users from shifting to the new operator. This will certainly have an impact on their growth rates. The Industry's total Data revenues is estimated to grow from Rs.35,000 crores in FY'15 to about Rs.50,000 crores in FY'16 and to Rs.66,000 crores in FY'17. And I am expecting RelJio to go from 0% market share in FY'15 to over 20% market share in FY'17. I think the trio of AVI to manage the increased competition in the best way amongst all other operators. Going by the spectrum holdings that these three operators have managed to pile up, they will still manage to grow by about 10% to 15% even in FY'17, when RelJio's aggression is expected to be much higher than in FY'16. All other operators, including the trio of RAT, are expected to struggle for growth in FY'17. Some of them could even be looking at their survival chances depleting. We could see some substantial M&A deals happening during FY'17, if not earlier.

Pls remember, all the thoughts mentioned above are My personal Estimates. It will be really interesting to see how things progress once RelJio's services are launched.

Following are the links to the Easy Results Summary pages of the listed Telecom operators:

Bharti Airtel Ltd.

Idea Cellular Ltd.

Reliance Communications Ltd.

Tata Teleservices (M) Ltd.

Eicher Motors Ltd. - Volvo exits it's investment completely.

Exactly three months ago I had written a report on 'over-valuation' of Eicher Motors Ltd. (Click here for that report). In that report I had mentioned Volvo selling more than half of it's holding in Eicher Ltd at a price of little over Rs.15,000/- per share.

During this 3 months period, Eicher Motors stock corrected a bit from levels of over Rs.16,000 to about Rs.14,000/-. But the stock again rallied some more post announcement of March'15 quarterly results to hit a new high of little over Rs.19,000/-. This rally seems to have prompted Volvo to sell the remainder of it's holding too. The sale of the remaining 10 lakh shares, constituting about 3.7% of Eicher Motors' equity was done today morning at a price between Rs.17200 & Rs.18200/-, at a discount to yesterday's closing price. Remember at this price, Eicher Motors' stock trades at about 70 times it's EPS, which ( I would like to repeat ) is very very high valuation for a manufacturing company. I think at the current price Eicher Motors stock is already pricing in growth for the next 2 years atleast, if not more.

According to me, Volvo has done the smart thing of booking all it's profit at current valuations. It's 7-8 years old investment has yielded returns of about 25 to 28 times it's investment. And even after this sale of holding, Volvo's JV with Eicher for manufacture of HCVs stays un-impacted. Since the JV is doing absolutely fine on the business front, I am not expecting Volvo to pull out of it anytime in the near future. But Volvo selling it's over 8% holding in Eicher Motors Ltd in two tranches within a space of just about 3 months is ample hint to other investors. Firstly this deal certifies that the stock is clearly over-valued, because Volvo's JV with Eicher too was part of the the Consolidated entity of Eicher Motors Ltd. Secondly, the floating stock of Eicher Motors Ltd has suddenly increased by nearly 22 lakh shares in the last 3 months.

( Click here for Eicher Motors' Easy Results Summary page. )

Bajaj Auto Ltd. - Post Q4-FY'15 update.

Bajaj Auto posted a 4% Y-o-Y drop in it's Q4-FY'15 Total Income and a 19% drop in it's Net Profit. Upfront the numbers look bad. But consider this: Bajaj Auto's Motorcycle sales were down over 18%, while 3-wheeler sales were almost flat during Q4 of this year compared to last year. The company's sales dropped a whopping 20% in the domestic market, while even it's Exports dropped 11% during the quarter. Exports for Bajaj Auto were going from strength to strength over the recent years. So this sudden dip was very disturbing. But there were valid reasons for us to believe that this dip was a temporary phenomena and the Exports should be back to strength, which they have shown in April & May of this year. Considering all this, the 4% drop in Total Income seems to be primarily because of increase in Average Unit Price for Bajaj Auto, which is a positive sign. That means the sales of lower priced 100cc to 125cc products dropped much more during the period and may be the company posted steady or small growth in sales of 150cc & higher vehicles.

( Click here for Bajaj Auto's Easy Results Summary page. )

Now look at the following chart which shows the monthly numbers Bajaj Auto has been doing in the Domestic market & the Export numbers. The numbers are combined numbers for both Motorcycles & 3-wheelers.

Look at the period between Jan-14 to Aug-14. Bajaj's domestic sales during this period averaged at about 1,75,000 every month. But during the period between Nov-14 to Mar-15, the same averaged at less than 1,40,000 per month. (Sept-14 & Oct-14 were festival months & hence excluded in the general calculations) Even on the Exports front, Bajaj's monthly numbers averaged at about 1,68,000 units for the 2nd Half of year 2014. But the same dipped sharply during the Jan-Mar'15 period to an average of 1,18,000 units. The primary reason for the sharp fall in Export numbers was that 2 of Bajaj's biggest export markets went through Elections & Change of Govt during that period, which created a temporary delay in approvals. The reasons given by the company seem to be very genuine because the Export numbers have bounced back sharply during April & May'15 to about 1,60,000 units each.

Bajaj Auto smartly used the lean quarter to introduce a few new products, both in the domestic as well as Export markets. First one was the new Platina, which is a volume product. It may not be as profitable as the Pulsar range of bikes, but will bring in good volumes. It has already started showing results with Bajaj Auto's domestic sales improving sharply over the last 3 months, primarily because of the new Platina and the Discover150, which was launched late last year. Over the last 3-4 weeks, Bajaj Auto unleashed 3 new bikes in the Pulsar range. The RS200 is the most hi-tech & most expensive Bajaj bike to have been launched till date at a price of around Rs.1,25,000/-. And the demand for this bike too has surpassed the company's expectations. The monthly volumes will be just around 2000 to 4000 units, but this one should be highly profitable for the company and also boosts the company's image in the market. The next 2 products were the Pulsar AS150 and AS200, a new segment of Adventure Sports bikes. The AS150 has a newly developed 150cc engine, which will be used in more Pulsar bikes in the coming months. These 2 bikes are priced between Rs.80,000 to Rs.1,00,000/- and will be doing good volumes.

Bajaj Auto has another few launches planned in the second half of this year. And then there is the possibility of the Quadricycle segment getting a Green signal from the Govt. Bajaj Auto is the only company with a product ready for launch, but the competition has been successful in delaying the Govt's decision making, giving themselves enough time to prepare their products. The Quadricycle segment will be interesting to watch out for. One cannot right away predict a huge success for this segment, but going by the way the small 4-wheeled CVs did in the market, we could see the Quadricycles too being well accepted in the market. But at the same time the 3-wheeler sales could be impacted because of it.

Valuations: Bajaj Auto's EPS for FY'15 stood at Rs.97, compared to about Rs.112 in FY'14. With volumes bouncing back and more new launches being planned, we can expect Bajaj Auto to post more than 5% growth in Total volumes during FY'16 and over 10% growth in the company's Total Income & Net Profit. At the current share price of about Rs.2250/-, Bajaj Auto's Market Cap stands at about Rs.65,000 crores and trades at a P/E ratio of 23. This cannot be termed cheap or expensive. A lot depends on how Bajaj's monthly numbers perform going ahead, especially the Export numbers. If Bajaj Auto manages to take it's average monthly Exports number to about 1,80,000 units for FY'16, which will be about 20% higher than the 1,50,000 it did for FY'15, then the stock's Fair Value will be raised substantially. During FY'15, Bajaj's domestic sales averaged at about 1,65,000 units every month. I am expecting the same to rise to about 1,75,000 units every month for FY'16. Anything more will be very positive for the company. But going by the expectations of lower Monsoon and increasing competition, expecting Domestic sales to grow by anything more than 5% will be being too optimistic. Even if Bajaj manages to meet the expectations I have put up here, we could see Bajaj Auto's stock hitting the Rs.3000/- mark over the next 12-18 months.