Jio vs Airtel vs Vodafone Idea - Subscriber Numbers upto July'19

Every month we have been reading reports of Reliance Jio adding a few million subscribers and Airtel + Vodafone Idea losing a few million of theirs. July'19 is no different. Reliance Jio maintained it's subscribers momentum with addition of another 8.5 million subscribers in July'19, taking it's total to almost 340 million. Vodafone Idea lost a smaller number of users compared to the previous 2 months. It's total subscriber base now stands at 380 million, down by 3.4 million. Airtel has now included Tata Tele's subscribers in it's count. Tata Tele had about 11.5 million subscribers in June'19. But Airtel+Tata Tele's subscriber count has jumped from 320.3 million in June'19 to 328.5 million in July'19. That means Airtel also lost nearly 3.2 million subscribers during July'19.

All the three operators have seen their VLR % erode during July'19. Starting with Airtel, it's own VLR % at the end of June'19 was 98.5%, which dropped to 94.95% in July'19. This is mainly due to addition of Tata Tele's subscribers in it's total count. Most of these Tata Tele's subscribers were already using Airtel's network on Roaming. Hence this had helped boost Airtel's VLR % for the previous few months, as can be seen from the table alongside. Airtel's VLR base has dropped from 315.5 million to 311.9 million, i.e. a drop of 3.6 million active users. The same at the end of January'19 was 331.2 million. That means Airtel has lost close to 16 million active users during these 6 months.

Looking at Vodafone Idea, it is already tainted to be the worst performing Telecom operator in terms of subscriber & revenue growth in the recent months. The effects of large-scale Network Integration activity across several circles has had a severe impact on Vodafone Idea's active subscribers count post March'19. At the end of March'19, Vodafone Idea's Total subscribers were 395 million, which is now down to 380 million, i.e. a loss of just 15 million users in 4 months time. Nothing alarming. But during the same period, it's VLR % has dropped from 93.3% to 81.9%, in a staggered manner. This means it's active subscriber count has dropped from 368 million to 311 million over those 4 months, i.e. a loss of 57 million, which is large figure. An average of over 14 million a month!! This is substantially more than what Jio is adding every month.

Over the last month or so, we have seen several announcements from Vodafone Idea about launch of TurboNet 4G services in more & more cities across the country. TurboNet 4G is the brand they have adopted for announcing the launch of Integrated network for Vodafone & Idea combined. TurboNet 4G also represents the launch of a network which is expected to offer wider coverage & much larger capacity than before, with the help of the largest spectrum pool amongst all operators in India. This should help improve adoption of 4G services amongst Vodafone & Idea users and also attract users from rival networks. We may not see much of it's effect in August numbers, but I am sure we will start seeing a boost in numbers for Vodafone Idea from September'19 onwards. Apart from launch of TurboNet 4G, Vodafone Idea has also introduced lower denomination recharge options for users to remain active on the network.

Coming to Reliance Jio, it's monthly subscriber addition numbers have been very consistent. It seems as if the company is despatching only a limited number of simcards / Jio Phones every month. For the 6 months between January to July'19, Jio's Total subscriber base went up from 289 million to 340 million, i.e. 51 million new additions translating into 8.5 million every month. That is precisely the number they are adding every month. Even their VLR % is steady around the 83-84% mark. Looks like everything is working in a very measured fashion. Sometimes even raises a doubt in my mind whether these are genuine numbers or manufactured ones.

Airtel & Vodafone Idea are now neck-to-neck in terms of active subscribers. It will be an interesting race from September'19 onwards. Airtel might inch ahead in August as Vodafone Idea's TurboNet 4G marketing started only in the latter half of August. In about 4 to 5 months time, Jio will close the gap between it's Active base numbers and the other two, which currently stands at about 29 million. And most probably Jio will just zoom past both of them. Both Airtel & Vodafone Idea are unlikely to offer something like the Jio Phone, which is what is pulling major numbers for Reliance Jio since the last couple of years. Both Airtel & Vodafone Idea will prefer to expand their 4G network coverage to get closer to that offered by Jio currently and target the Smartphone users to upgrade to 4G or pull a few dis-satisfied users from Jio or BSNL.

That brings us to the comparison of Wireless Broadband numbers of the 3 operators. Jio's entire subscriber base is counted as Broadband user base as it's 4G-only network. In case of both Airtel & Vodafone Idea, it comprises of 4G and 3G subscribers. The 3G subscriber base for both operators is rapidly falling. Both have less than 25 million 3G users on their Networks as of July'19. By the end of this year, both operators are expected to shut down 3G networks as the same spectrum can be used to add to their 4G capacity. So all these 40 to 50 million 3G users will be forced to upgrade their handsets and start availing 4G services over the next 3 to 6 months.

Airtel's Wireless Broadband user base has been steadily increasing over the last 6 months. It went from 110 million in January'19 to over 121 million in July'19, i.e. at a pace of almost 2 million a month. On the other hand, Vodafone Idea had a tough time trying to maintain it's wireless broadband user numbers between February'19 to May'19, when it lost about 1.25 million users. It has seen some increase for the last 2 months of June & July'19. I am pretty sure that this will pick up pace from September'19 onwards & we could see Vodafone Idea adding 2 million+ Wireless Broadband users every month. This race between Airtel and Vodafone Idea will get very interesting by the end of 2019. I am excited to see which one of the two proves to be a bigger challenger to Jio in the year 2020. So far we all know that Airtel has performed better than Vodafone Idea. But there are reasons for the same. As Vodafone Idea starts pushing it's upgraded network services through formal advertisement channels, we should see the company numbers start improving.

Reliance Jio's Happy New Year Offer - Bad news for everyone!!

Reliance Industries' Chairman made another 'Big' announcement yesterday about Reliance Jio. And it turned out to be just another new offer 'Happy New Year Offer', where Jio customers will get access to Free services till 31st March'2017. The main reason for extending Free services for another 3 months was said to be that the company was not very happy with the Quality of Service some of it's customers were getting,

primarily due to 2 factors: 1) The Voice Calling experience still wasn't as smooth as expected due to lack of cooperation from incumbent operators; 2) The Data speeds for some customers was below acceptable levels as nearly 20% of the subscribers were exploiting the existing FUP limits to the maximum.

To counter these, on one hand Reliance Jio will continue to work with regulator & other operators to enhance the Interconnect Capacities to bring down Call Failure rate to under 0.5% level; and on the other hand Reliance Jio is lowering the FUP limit to 1 GB per day under the new Happy New Year Offer. This offer opens for new enrollments from 4th of December'16 as TRAI had asked the company to end it's Welcome Offer after 90 days of introduction, i.e. on 3rd December'16. Subscribers of Welcome Offer will continue to enjoy benefits of the same till 31st December'16 and then will be migrated to Happy New Year Offer on 1st January'17. Hence from 1st January'17, every subscriber on the Jio network will have a FUP limit of 1 GB per day, which is expected to improve the quality of Data service for most users.

Why am I disappointed? : As a user of Jio's service, I am happy to be able to enjoy the Free service for 3 more months and in turn save couple of thousands more. But I was actually eagerly looking forward to the day when Jio's Free service ends and how it performs once people are supposed to start recharging/paying to continue using Jio's Data & Voice service. In the current situation where over 50 million subscribers continue to use/abuse Jio's Free service, it is quite an unfair comparison between experience of Jio's network with that of others'. Average Daily Data usage of a Jio user is well above 500 MB, whereas the average Monthly Data usage of a 3G/4G user of other operators is about 1 GB. Jio's user base has already crossed the 3G/4G user base of Airtel, making Jio the top Wireless Broadband service provider. That means the Data Volume on Jio's network will be in the range of about 20 to 30 times the Volume on networks of the other incumbent operators. In such circumstance, the Quality of Data service is bound to drop especially in high density regions.

The other reason for feeling bad is that this extension of Free Service period will mean even more pain in an already troubled Telecom sector. Only the Top-3 operators (Airtel, Vodafone & Idea) were making some kind of decent Cash Profit before the Jio Tsunami hit the sector about 3 or 4 months ago. All the other smaller operators were already struggling to cover their Operating Costs with their Revenues, with that situation expected to worsen much much more during the 6 months period from October'16 to March'17. In fact we could see a couple of operators to just Shut shop (either partially or fully) due to Liquidity issues as Banks will also be reluctant to fund them more, without the promoters willing to infuse more money in the business. All these existing operators (including PSUs BSNL & MTNL) are struggling to retain a substantial portion of their customer usage, especially the ones with a 4G smartphones. With over 50 million users already having shifted their Data as well as Voice usage (either partially or fully) to Jio, all the existing operators are bound to feel substantial pain in revenue momentum. In my earlier posts, I had mentioned that I am expecting the Top-3 operators to post a drop of about 10-15% in their Revenues in December'16 quarter compared to June'16 quarter numbers. Now the March'17 quarter could prove to be even more painful with the drop extending to about 15 to 20% of Revenues quite easily. Such large drops in Revenues at a time when these operators are investing in CAPEX for expanding 3G/4G capacities could mean that even these Top-3 operators could post Cash Losses or very negligible Cash Profits in either December'16 or March'17 quarter. This is also not good news for shareholders of Reliance Industries as the company will need to Capitalise another quarter's Operating Costs for Jio, which could be around $ 1 Billion, leading to higher Interest burden and Depreciation Costs once Jio's revenues & costs start being consolidated with Reliance Industries' Quarterly numbers. Ofcourse this additional $ 1 Billion is quite small to the size of the total CAPEX undertaken by the company for Jio in total. But even shareholders of Reliance Industries must be very eager to see how Jio's financial performance progresses, and this extension will mean a further delay for the same.

I am expecting all these existing operators to approach TRAI / DoT to appeal that Reliance Jio cannot be allowed to offer Free Service for another 3 months. Even I am not sure if Reliance Jio's new offer will get permission from the regulator or not. We should know about it in the next couple of weeks for sure. Let's wait & watch.

Reliance Jio Tariffs - Clear focus on Revenues!!!

Reliance Jio's tariffs has become the hottest topic in the Indian media since the chairman of Reliance Industries announced the same at the company's AGM yesterday. While everyone is going ga-ga over how Revolutionary or Game-changing the tariffs are, there are people like me who are somewhat disappointed. While I was expecting Reliance Jio's tariffs to be focused on the Data user with Voice being offered as an additional VAS, the actual tariffs seem to be focused on Voice user with Data as a VAS. Yes, it is being highlighted everywhere that Reliance Jio will NOT be charging for Voice Calls being made to anywhere in India, not even on Roaming, that certainly Does Not mean that a customer with an active Sim card will be allowed to make any number of calls without Recharging with any of the 10 Plan options. In a way what Reliance Jio has done is that it has bundled Unlimited Voice calling in all it's Plans. The Plans are designed to include charges for both Voice & Data & SMS. Not just that....most of the 'supposedly Big' tariff announcements are just means to fool people into believing that they are being offered something out-of-this-world.

The 'Supposedly Big' annonucements are:

* Free Voice Calls to anywhere in India, even on National Roaming.

* Data at just Rs.50 per GB

* Free subscription to Jio Apps worth Rs.15,000 till December'2017

* Free unlimited 4G Night Usage

Now let's look at the real picture. The following image shows all the Jio's tariff plans announced by Reliance Industries via a Press Release:

Let's look at it point wise:

* Free Voice Calls to anywhere in India, even on National Roaming: Voice calls are Free only after a subscriber has paid for either of the 10 plans. For Example: Suppose a subscriber recharges for the smallest plan, i.e. Rs.19, which is valid for 1 day. He will get to make Unlimited Voice Calls only for that day. He won't be able to make any calls the next day, until he recharges again. That means Voice Calling is bundled in the Plan charges. It's an excellent deal for someone who loves talking a lot on the phone. Jio will certainly hope that most of the Voice Calls are made within the Jio network and for that to happen it will have to scale up the Subscriber base at a very rapid pace. For every call that is made to another network, Jio will have to bear the Interconnect Cost of 14 paise/min. To compensate for this, Jio will hope that it also receives an equal number of calls from other networks, especially after it has built a substantial user base. I don't think that will happen until other operators too start offering Free Unlimited Calling under some affordable plans. With the cheapest 28-days plan of Rs.149, Jio will earn a revenue of little over Rs.5 per day. Hence Jio can maintain Free Voice Calling only if the Average Calls per user per day to another Network remain under 25 minutes or so. As per information available, as of now the Average number of outgoing calls made per user per day is around 15 minutes. I think Jio subscribers will make lot more calls as it's free. Hence Jio certainly needs to not just ramp up it's subscriber base, but it also needs to ensure that subscribers use their Jio number as their Primary contact number. From a subscriber's point of view, it's a bonanza for anyone who currently spends over Rs.200 per month only on making Voice Calls. Rival operators too will tinker their Voice Call charges or their STVs to minimize loss of Voice traffic.

* Data at Rs.50 per GB: This rate is true only if we consider the WiFi Data limits, not for 4G Data limits. Even on the most expensive plan, which offers 4G Data of 75 GB for Rs.4999, the rate comes to about Rs.67 per GB. Majority of the population cannot afford anything more than the Rs.499 or Rs.999 Plan, where the Data rate comes at Rs.125 and Rs.100 per GB respectively. These rates are certainly not cheap. These plans will look attractive to only those who have regular access to JioNet's WiFi Hotspots as each of Jio's Plans (other than the Rs.149 plan) comes bundled with WiFi Data limits that are double of the respective 4G Data limits. Jio claims to have a million WiFi Hotspots active currently, but all of them are mainly in highly active Public places in Urban areas. People who frequently move in such areas will certainly find Jio's tariffs attractive. But it's a useless feature for people living in smaller towns or rural areas. And also for people who are dependent on Wireless Data service and consume substantial Data while at home and not at work. A major chunk of Data usage for most Indians happens while at home. All such people are not going to find these tariffs attractive, unless someone is highly lucky to be receiving a JioNet WiFi signal at their residence.

* Free subscription to Jio Apps worth Rs.15,000 till December'2017: This is One Big Joke!!! Take a closer look at the Tariff card shared above. It clearly says that Data used for Jio Apps, Video Calls and other content on the Internet will be debited from the Data allocation for the Plan. Then how does Jio Apps subscription become Free as a user will be charged for Data used for the same. And claiming it to be worth Rs.15,000 for the year is only the matters worse!! Amongst the Jio Apps, the main focus of most people is on JioCinema, JioTV and JioMusic. While Music streaming could consume about 2-3 MB per minute, the Video Apps consume about 15-20 MB per minute. That means a person can listen to about 300-400 minutes of Music per GB or watch 50-60 minutes of Video per GB. I seriously think that the usage of these Apps will collapse substantially from 1st January when Jio starts charging all it's users. Not many people will use these Apps on Jio's 4G network from 1st January. My earlier expectation was that Jio will offer the Apps bouquet for something like Rs.300 to 400 per month, which will also include the Data consumed by these Apps. But my expectations were probably just way too optimistic.

* Free unlimited 4G Night Usage: Look at the Night Usage timings in the above tariff card. A 3-hours window between 2 am to 5 am, when 99% of the population is fast asleep, is another big joke. Earlier I used to ridicule the 12 midnight to 6 am Night Usage timings set by the incumbent operators for some of then 3G/4G plans and was happy that atleast Tata Tele had set a more sensible timing of 11 pm to 7 am. But after looking at the timings set by Jio, even the incumbent operators start looking much much more lenient. Only a very very small percentage of Jio's subscriber base will be able to make good use of the Unlimited Night Usage feature. For all others, it's as good as non-existent feature.

Summary:

Reliance Jio is Open to all Indians from the 5th of September'2016. The Chairman has announced that All Usage of Jio network for all subscribers will be completely Free till 31st December'2016. This announcement will ensure that millions of Indians (especially the ones who already have a 4G handset) will try and grab a Jio Sim card at the earliest and hope for an early activation. The Chairman also said that the systems are being prepared to activate 1 million Sim cards per day. With a near about 118 days of Freebie period till the end of this calendar year, we could see anywhere between 20 million to 50 million Jio Sim cards being activated during this period. The 4G user experience, which was pretty good for most 'Test' users through June and July, was already seeing some bit of deterioration over the last couple of weeks, when Jio added atleast a couple of million 'Test' users to it's network. With the mad rush for Jio Sims expected to continue from next week under the 'Welcome' Offer, it will be interesting to see if Jio's network is able to handle the load and still offer a User experience which is atleast better than 3G network experience of rival operators.

During this 'Welcome' Offer period, we could see more follow-on announcement from Reliance Jio. I am hoping for some new Tariff Plans for people who are not interested much in Voice Calling, but only Data Usage, especially for people who consume over 10 GB of Data every month. Possibly specific Plans for JioFi devices. Unless something like this happens, I am expecting about 50% of Jio's users enrolled till 31st December'2016, to shun Jio and go back to their previous Sim cards from rival operators. I will certainly be one of them, unless Jio offers Data-specific plans with higher usage limits. 

I think Reliance Jio will get very popular amongst Corporate Users, who are generally Post-paid ones. Reliance Jio's Postpaid plans are certainly offering lot more than that being offered by Airtel or Vodafone or Idea currently, especially on Plan 499 and above. These operators will immediately tweak their Post paid plans to try and retain their Corporate Customers, who offer substantial ARPUs on a consistent basis. Any loss of Corporate customer base to Reliance Jio, will mean a bigger impact on their profitability.

From the company's point of view, it is positive thing that the focus is clearly on earning decent amount of Revenues from every subscriber. Even under the cheapest plan of Rs.149 with 28 days validity (for prepaid), Reliance Jio will earn a minimum of about Rs.160-165 per month from every subscriber. Assuming about 50% of it's overall subscriber base to opt for a higher plan, Reliance Jio could be looking at a monthly ARPU of around Rs.400/-. Even if Reliance Jio manages to retain a paying subscriber base of about 25 million from 1st January'2017 onwards, it could result in monthly revenues of around Rs.1000 crores to start with. I am expecting Reliance Jio to incur a monthly Operating Cost of about Rs.1000 crores just to keep the 4G network Live across the country. In addition there will be cost for License Fees, Spectrum charges, Interconnect Cost, Staff Cost, Marketing Expenditure, etc., which together should amount to about Rs.700 to 1000 crores a month. That means Reliance Jio needs to achieve a monthly Revenues of about Rs.2000 crores just to cover all it's Expenditures (excluding Interest). Depending on how well it is able to ramp up it's paying subscriber base from January'17 onwards and react to competition's moves, it could take anywhere between 6 to 12 months for Reliance Jio to reach a monthly Revenues of Rs.2000+ crores. 

Reliance Jio certainly cannot stop there as it has the Huge Debt burden to cater to as well. Thanks to a rich parent's backing, the Average Interest Rate for Debt raised by Reliance Jio is probably just about 7 to 8%. Still the Annual Interest Cost alone should be in the region of Rs.8000 to 10000 crores (including for Working Capital Loans), translating into an average monthly figure of about Rs.700 to 800 crores. That means Reliance Jio will need to take it's Monthly Revenues closer to Rs.3000 crores to achieve Cash Profit. I will be highly surprised if Reliance Jio achieves that target before the end of year 2018, especially with the current set of tariff plans announced. Reliance Jio will certainly have to make serious changes to it's tariff structure sometime around the end of year 2017 to keep the subscriber addition momentum going.

Thanks to the Freebie period under the Welcome Offer announced by Reliance Jio till 31st December'2016, I am expecting the entire Telecom industry to take a 3 to 5% hit in Gross Revenues in September'16 quarter and about 10-15% hit for December'16 quarter. The Oct-Dec'16 quarter will be quite a pain period for the entire Industry. But things should start looking better from the Jan-Mar'17 quarter and we can expect to see some good competition. The worst hit could obviously be the smaller operators & it will be interesting to see how long they survive and what steps they take. Despite the tariffs announced by Reliance Jio being disappointing for a small section of users, it will be positive for the overall Subscriber community, primarily via increased competition.

Telecom Analysis - June Quarter AGR Numbers

August'2016 has been an action-packed month for the Telecom industry. Mainly because Jio's activities have built up quite a bit of pace, which has got all the existing operators running for cover & fire their own ammunition. After bundling a Jio 4G Sim with every LYF handset sold (with 90 days of Preview Offer) from the month of May'16, which picked up considerable pace only in June and July, Reliance Industries started offering the Preview Offer Sim cards to anyone with a compatible 4G handset from a huge list of manufacturers in the second half of August. Reliance Jio was expected to have activated over 3 million 4G Sim cards under 'Test' by the end of July'16, but the mad rush over the last 2 weeks must have helped it double the Active Sim Cards number by the end of August'16. With so many users eligible to use Free 4G Data and even Voice Calls (to some extent) for a period of 90 days, it is bound to impact the Revenue numbers of all existing operators for the September quarter.

TRAI recently declared the Operatorwise & Circlewise Revenue numbers for June'16 quarter. This is probably the last quarter before Reliance Jio starts making a noticeable impact on numbers for all other existing operators. Hence it becomes important to see which operators have gained pace just before the real war begins. In my analysis here, I have considered the Circlewise Adjusted Gross Revenues for all operators. (RCom has not declared it's numbers for June'16. Hence I have considered a 3% drop from it's respective March'16 numbers, just to get some approximate value. In any case RCom forms just about 3.3% of the Industry's AGR. Hence it's not going to impact the actual numbers much.)

The AGR numbers for the entire industry has posted a Q-o-Q growth of around 1.3%. As expected the Top-3 operators have managed to grow at a better rate with Airtel leading the growth charts, followed by Vodafone (surprisingly) & then Idea. Tata Tele and Telenor too have posted marginal Q-o-Q growth, while Aircel has posted a marginal drop. The biggest shocker came from BSNL/MTNL combine. It's AGR numbers are down by nearly 19-20% Q-o-Q, after having posted a strong 10+% growth in March'16 quarter. It seems as if BSNL/MTNL booked some advance revenues during March'16 quarter in order to make the numbers for the previous fiscal look good. Will be interesting to see the numbers & market share BSNL/MTNL manage to post for Sept'16 quarter. BSNL was the first to announce super-aggressive 3G tariffs offering 10 GB Data for just Rs.549/- and Unlimited (No FUP) Data for Rs.1099/-. These tariffs have become applicable from 25th August.

Metro Circles: Thanks to the massive fall reported by BSNL/MTNL, all other operators have seen their market share jump up Q-o-Q. Vodafone continues to lead here with over 34% market share & a healthy growth number too. But Airtel clearly seems to be catching up with stronger growth. Both Airtel & Vodafone are offering 3G as well as 4G service in Mumbai, Delhi & Kolkata circles. Idea is clearly losing this race, first by being a late entrant and now because of inability to offer 4G in all the 3 circles and No 3G in Mumbai circle. Surprisingly Tata Tele has managed to post marginal growth despite offering only CDMA services in Delhi and only 2G GSM services in Mumbai & Kolkata circles. It's Wireline business seems to helping it here. But still it's commendable to see Tata Tele fighting for the 3rd spot in the Metro Circles category with No 3G or 4G service.

Category-A Circles: Despite substantial fall reported by both BSNL and Telenor, the AGR for Category-A Circles has posted a 1.2% growth. Airtel has extended it's market share lead with fastest growth rate. Airtel now commands a third of the revenues in this category, a full 140 bps improvement over March'16 number. Vodafone & Idea too have seen 50 bps and 20 bps improvements. Vodafone growing faster than Idea in Category-A surprised me. I was expecting Idea to do better as it had 4G presence in more circles in this Category than Vodafone. Let's see if things change in the current quarter. Tata Tele has again done a decent job here. Telenor's performance in Maharashtra & Gujarat circles was quite disappointing in June quarter.

Category-B Circles: This category has proved to be the fastest growing one during the June'16 quarter. Airtel has posted a super-strong near 10% Q-o-Q growth in AGR, but is still in the 2nd spot in this category. Idea continues to lead in this category despite a lacklustre 1.7% growth. While Idea lost 80 bps in market share, Airtel has gained 140 bps, thus bridging the gap considerably. Vodafone & Telenor too managed to post healthy growth rates in this category, which helped them enhance their market shares by a small extent. Vodafone again managing to outpace Idea's growth even in this category is really commendable. It will be interesting to see if Vodafone can manage to hold on to this momentum in the coming quarters. Telenor's UP(E) & (W) circles continue to do well and the operator is now comfortably placed at the 4th spot in these 2 circles with near 9% market share.

Category-C Circles: Airtel has taken another big leap here and is just a fraction away from the 50% market share mark. The rest of the 6 operators have managed to hold on to just over 50% of the market in this category. Vodafone, Idea, Aircel and Telenor have all posted decent growth and have also managed to inch up their market shares, all at the expense of BSNL. Another interesting point is: Telenor, which operates only in Bihar circle in this category, is now about 3 times bigger than Tata Tele in that circle, despite being a very late entrant. Telenor now commands a respectable 7.3% market share in Bihar circle. This is the only category where Aircel has managed to post some decent growth in AGRs. Tata Tele is the smallest operator here and may seriously look to close down it's operations in these circles in the near future.

Summary:

Airtel has clearly gained good momentum in June'16 quarter and is seriously pitching itself for some tough competition with RelJio. The announcement of the 'Mega Saver' pack earlier this week was one big step in that direction. Each of the existing operators is going to get hurt due to RelJio's services, but Airtel will clearly be hurt the least. It will be very interesting to see how Airtel's 2G+3G+4G operations across almost all 22 circles will fare against RelJio's pure 4G operations across all 22 circles. With aggressive Data packs, Airtel is trying it's best to retain it's Data subscribers. But RelJio is not looking at just Data subscribers, who are mainly focused in Urban & Semi-urban locations. RelJio is pretty serious about Voice Calls business too and hence has already built excellent 4G coverage even in Rural and remote areas.

I am expecting RelJio to grab the No.5 spot in terms of AGRs within 6 months of launch. RelJio is already having over 6 million active users on it's networks and it could easily be having around 20 to 25 million users by the times it completes 6 months of Commercial operations. With ARPU expected to be a minimum of Rs.300, RelJio could be generating quarterly Revenues of over Rs.2000 crores by then. But while doing so RelJio is expected to put a bigger hole in the combined AGRs of the rest of the operators as the over-competitive environment will bring down tariffs in a knee-jerk manner, while the increase in usage will happen only over a period of time.

As of now all eyes are set on RIL's AGM tomorrow, i.e. 1st September, when everyone is expecting to hear a definite date of RelJio's Commercial launch. My hunch is that it is not very far from now. Possibly well before the end of September'16.

Reliance Industries Ltd - Q4 FY'16 update : Surprise after surprise.

Throughout Q4 FY'16, it was widely expected that Reliance will launch it's long awaited & much delayed Jio 4G services on a commercial basis by the start of April'2016. But the company did not fail to Surprise (read as Disappoint) AGAIN as there is absolutely no confirmed announcement about Jio's launch even by the first week of May'2016. More on this later....

The bigger Surprise from Reliance Industries came in terms of continued strong profitability in it's primary business units of Refining & Petrochemicals. The average price of crude hit the lowest levels during Q4-FY'16. Hence it was no surprise that the Revenues from Refining business took a proportionate hit. But the Refining EBIT number did better than expected with only a 1.5% Q-o-Q drop, but was still 30% higher Y-o-Y. The chart alongside shows the T-T-M EBIT progress of RIL's Refining business. The surge seen over the last 3-4 quarters will now lead to stability or only a gradual improvement going forward, unless the company has more surprises in store for us. I am expecting to see the T-T-M EBIT number for Refining to stabilise around the Rs.24,000 to 25,000 crores mark in the coming few quarters. The huge improvement in EBIT numbers from Refining unit of Reliance Industries did not come on the back of big expansion in capacity, but mainly because of improvement in efficiency of the existing capacities. I am not expecting further huge improvement in efficiencies, but there could be minor improvements.

On one hand I am expecting RIL's Refining business to stabilise in terms of EBIT numbers, but on the other hand I am expecting the PetroChemicals to continue deliver further improvement in EBIT numbers. In fact the EBIT improvement journey has just started for RIL's PetChem business. After posting a 27% Y-o-Y jump in EBIT in Q3-FY'16, RIL's PetChem division posted a stronger 35% Y-o-Y jump in Q4-FY'16. With more CAPEX projects coming on stream during the current fiscal, we can expect this division to continue posting strong Y-o-Y growth in EBIT number for few more quarters for sure. The CAPEX at the PetChem unit is leading to increased capacity of certain products as well as improvement in efficiency at certain other products. The full effect of all this CAPEX is expected to be seen in FY'18. That means we still have atleast another 4-6 quarters of continued improvement in EBIT numbers. The growth rates may vary, but they will still be good enough. As of Mar'16, the T-T-M EBIT from Petrochemicals unit has crossed the Rs.10,000 crores mark and could very well progress towards Rs.12,000 to 13,000 crores mark over the next 3-4 quarters.

As of March'2016, the two business segments of Refining & Petrochemicals of Reliance Industries Ltd. together contributed a total EBIT of around Rs.34,000 crores on a T-T-M basis. Over the next one year, I am expecting this figure to increase by atleast another 10% or so to levels of over Rs.37,000 crores.

The remaining three business units of the company together contributed just about 5-6% of the company's Total T-T-M EBIT as of March'2016, down from a contribution of over 15% at the end of March'2015. The primary reason for this is a near 90% fall in EBIT from Oil & Gas production business, which was on expected lines as the International prices of Crude Oil & Natural Gas had seen a collapse during the year 2015. The prices of these commodities seem to have bottomed around Jan-Feb'2016 and have seen a smart bounce back over the last 2 months. The Crude Oil price for example is now trading around $45 per barrel compared to lows of under $30 registered over 2 months ago. Even if the prices continue to trade within a 10% range of current levels, I think RIL's Oil & Gas business too will start posting improved EBIT numbers, mainly because of it's US Shale assets, where the company has managed to bring down operating costs considerably. Hence the recent recovery in prices will help boost profitability from near-zero levels in the most recent quarter. The T-T-M EBIT from the Oil&Gas business has dropped from levels of around Rs.3200 crores to under Rs.400 crores over the last 1 year. Even if Crude Oil stays within the $40 to 50 per barrel range for the rest of the year, I think RIL's EBIT from this business could partly recover to levels of around Rs.1200 crores or so quite easily.

Coming to RIL's most important consumer-facing business (until Jio's launch happens), which is the Retail unit. This business has progressed on expected lines with just over 20% growth in Revenues as well as EBIT. The current year & the next could prove to be the most important years for Reliance's Retail unit. We will see launch of e-commerce verticals of several of Reliance Retail's divisions. This Online expansion will benefit from Jio's infrastructure. In return, Jio will also immensely benefit from the Retail unit's wide network of stores as well as consumer connect. I think we can expect the Retail division to continue posting handsome growth of around 20% Y-o-Y, while the EBIT could post a little higher growth rates.

Coming to the All-Important question of RelJio's launch, I think Reliance will finally start charging for it's services & open it to general public anytime in the next 3 months. Currently the service is being offered completely Free-of-Cost to over 5 lakh users, most of whom are part of the company's employee base or their relatives. As a next step, Reliance has started an invite system where each employee can invite upto 10 people onto the RelJio's network. But there is one condition attached to this invite: the Invitee needs to purchase a LYF handset, which will entitle him to enjoy all of Jio's services without any further costs for a period of 90 days. This invite system could alone add another million users to RelJio's network in the coming few weeks. Apart from this, RelJio's network will see addition of another couple of million users in the form of RCom's CDMA subscribers, who are being migrated to 4G to free up the 850 MHz CDMA spectrum. That spectrum in about 17 circles is either being sold to or shared with RelJio to introduce a third 4G band on the network. This 850 MHz band will enhance the reach & indoor penetration of RelJio's 4G network. The process of integrating this band is what is said to have further delayed RelJio's commercial launch by an additional few months, than the April launch which was earlier expected. So even if RelJio plans for a August or September launch of commercial 4G services (atleast in some crucial circles), it could be having about 3 to 4 million active users on it's network. And once doors are opened for general public, RelJio could easily add another 15 to 20 million subscribers during the 2nd half of the fiscal. By then the company could be easily having a monthly revenue in excess of Rs.1000 crores, which should be good enough to cover about 75% of it's operating costs. I am expecting RelJio to be EBITDA positive during the next fiscal.

Coming to the Valuation part, RIL's share price has come down by about 10% post the announcement of the company's Q4 result. the primary reason being the continued uncertainty on RelJio's commercial launch. I think this is an excellent opportunity for those who still haven't invested enough in Reliance Industries. At the current price of about Rs.975 per share, the company's Market Cap is around Rs.3.15 lakh crores, which is just about 6 times it's current T-T-M EBITDA and less than 8 times the Cash Profit figure. Excluding RelJio, RIL is expected to post further double-digit growth in EBITDA & Cash Profit during the current fiscal & the next. This makes the current valuation of Reliance Industries look very very attractive. RelJio is expected to post substantial EBITDA & Cash Losses during this fiscal, but the numbers will dramatically improve in the next fiscal. Hence on a Consolidated basis, I am expecting RIL's numbers to look bad at the end of this fiscal, but will be substantially better from the next fiscal onwards. With most of the large CAPEX for RIL to end by the end of this fiscal, the company could start reducing it's large consolidated Debt from the next fiscal using the huge Cash Profits from the primary business units. I will further reiterate that FY'18 could be a dream year for Reliance Industries Ltd and nobody should miss the chance of being a part of it, especially when the stock is available at reasonably attractive valuations currently.

Reliance Industries Ltd. - Firing on 2 cylinders & 2 more to start firing soon!!

Reliance Industries Ltd positively surprised everyone with the kind of numbers it posted for Q3-FY'16. I was myself expecting a Net Profit number of between Rs.6800 to 7000 crores for the quarter, but the company delivered Rs.7290 crores!! The product prices continued to fall during Q3, thanks to further downward movement in Crude Oil prices. But Reliance Industries seems to have clearly managed to bring down it's raw material prices even more, which has led to a sharp improvement in it's margins. Reliance Industries reported an improvement in it's EBITDA margin of just over 250 bps in Q3 compared to Q2 of this fiscal. Some part of the benefit could also be due to the commissioning of certain projects both on Refining side as well as Petrochemicals side.

Amongst the two segments, the Refining business is clearly the brighter shining star in RIL's portfolio. The actual EBIT from Refining business has double in Q3 this fiscal compared to the same quarter in previous fiscal. This is a very very big thing, even overshadowing the fact that the Petrochemicals business too posted a near 30% growth in actual EBIT, which in itself is a very positive thing. The charts above show the T-T-M progress in EBITs of the two most important business segments for Reliance Industries.

With the mammoth Refining & Petchem CAPEX cycle coming to an end over the next 3-4 quarters, there is a possibility of further improvement in margins from these 2 businesses. But the Q3-FY'16 numbers itself were so good that even if the company manages to post same kind of numbers for the next few quarters, it will still seem to be very good performance. We could see some fluctuations in numbers depending on sharp Crude price movements & corresponding Crude sourcing for the company. But the company has done well till now to use the Crude price movements in it's favour. Another small factor that is boosting the company's margins slightly is the increased demand locally, leading to increased allocation for local markets. Reliance already has got 750 of it's own Fuel Retail centers operational and more are joining with every passing month. We can expect this number to double over the next 12 months or so.

Reliance Retail & upcoming Jio launch:

Reliance Retail did spring a small surprise during the Q3, having crossed the Rs.6000 crores turnover mark for the first time. It was a sharp Q-o-Q jump of 20%. At the end of Dec'15, the T-T-M Revenues from Reliance's Retail business also crossed the Rs.20,000 crores mark with a 7% Q-o-Q jump. All this even before the launch of e-commerce platform of the company, which is expected to happen over the next 2-3 quarters, alongwith Jio's commercial launch. Just last week Reliance Retail has started selling Jio LYF branded handsets through it's own outlets including Reliance Digital, Digital Express and Express Mini outlets. In the coming weeks, Reliance Retail will also start selling these handsets via 1.2 lakh small retailers spread across the country. The sale of handsets will only pick up speed only after Jio's commercial launch of 4G services. Reliance Retail will use these distribution channels to sell not just LYF branded handsets, but will also supply the small retailers with handsets of other popular brands. Reliance Retail could become the one-stop-supply-source for many of these small retailers & could also integrate them with it's upcoming e-commerce platform.

The best part about Reliance Retail's progress is that the handsome growth is not coming at the cost of profitability. Even though the EBIT numbers are not big, but the important point is that the EBIT number is positive, which many other large retail chains are struggling for. Even the large e-commerce platforms are still burning cash. Going forward there are many more growth avenues for Reliance Retail, some of which I have highlighted above. This is also one business which will grow much more in size in the coming years, though it may not add too much to the company's profits, but still will play an important role in increasing presence in Reliance's consumer-facing businesses.

I have already highlighted the potential of Jio's 4G & Broadband business in my earlier posts related to Reliance Industries. Hence I won't repeat it again here. The media reports doing the rounds currently suggest a commercial launch in March/April period. Let's hope these reports finally do turn out to be true.

Wireless Data - the only major hope of Wireless carriers!!

With increasing penetration of 3G networks across the country & rising percentage of subscribers with a Smartphone in their hands, the usage of Wireless Internet services was bound to grow at a very very fast pace. Almost all telecom operators in India, including BSNL, have seen a staggering growth in the monthly consumption of Giga Bytes on their networks, which has translated into an almost similar staggering growth in Revenues from the Wireless Data service over the last 2 years.

I have information from Quarterly reports shared by Bharti Airtel & Idea Cellular, which are two of India's Top-3 Wireless carriers in India. Between Sept'13 and Sept'15, Bharti Airtel's Quarterly Data Revenues have seen an almost 180% jump. During the same period, the company's Quarterly India Telecom Revenues have grown by just 20%. About 80% of this incremental growth over this period of 8 quarters has come from Data Revenues alone. Data now contributes 21.2% of Airtel's Quarterly revenues compared to just 9.1% two years ago.

The quarterly volume of Data carried by Airtel's networks has increased by more than 230% over the last 8 quarters from under 35 million GBs to 115 million GBs. During the same period, the Average Rate per MB charged has come down very gradually from 30 paise to 25.2 paise. This slow erosion in rate is not because of increased competition, but primarily because of increased proportion of subscribers now opting for a Data pack instead of being charged on pay-as-you-use basis.

Coming to Idea Cellular, the company's Quarterly Data revenues have grown an even stronger 211% between Sept'13 and Sept'15. On the other hand Idea's Total Quarterly Revenues have grown by about 38%. Data business has contributed about 48% to Idea's incremental growth over this period of 8 quarters. Data's contribution to Idea's Quarterly revenues has jumped from 8.6% in Sept'13 to 19.3% in Sept'15.

In case of Idea Cellular, the growth in Quarterly Data volumes between Sept'13 and Sept'15 has been even more staggering. From about 17.5 million GBs, the quarterly volume has more than quadrupled to 72 million GBs over the period of 8 quarters. The Average rate per MB has seen a slightly faster erosion for Idea as compared to Airtel. Idea's Average rate per MB has fallen from 31 paise to 23.4 paise over the last 8 quarters. Despite faster growth in volumes and revenues from Data services, the contribution of Data to Idea's Total Quarterly revenues at 19.3% still lags Airtel's figure of 21.2%. This is mainly because Idea has done better with it's Voice business over the last 8 quarters, as compared to Airtel. 

Conclusion: 

As per my estimates & gut feeling, the Indian Telecom industry is at the cusp of a very dramatic change in it's composition. From being a Voice-dominated industry, it will soon take big strides towards being a Data-dominated one, over the next 2-3 years. It will all start with the launch of nationwide 4G services from Reliance Jio Infocom Ltd, which is a subsidiary of Reliance Industries Ltd. Expected to start by the end of this year, Reliance Jio will herald a new wave of communication services, not just Data service. I am expecting Reliance Jio to try & capture even the traditional Voice business by offering VoIP based services. Reliance Jio may or may-not offer the traditional Voice service, where we are charged on a per-sec or per-min basis. Everything could get counted in terms of Mega Bytes & Giga Bytes, even the Voice Calls.

Many of us have already experienced VoIP, either via Whatsapp calling or Google Hangouts or Video/Voice calling via Skype or Facebook Messenger, etc. These things work well only when there is good reliable high-speed internet service at both ends of the conversation. 3G networks have enabled us to have a glimpse of such VoIP services, but the experience has not always been very smooth. Hopefully with 4G speeds, there should be no problem even with HD-voice & HD-video services. Just like the way the use of Mobile Internet shot up with increasing population of Smartphones with subscribers, the use of Voice & Video calling over Internet services will shoot up with increasing penetration of 4G networks across the country. My prediction is that the mobile operators will start experiencing an erosion in their Voice revenues right from the first half of the year 2016, something which they have never experienced in the last 20 years.

All leading operators, including Airtel, Vodafone, Idea, have already started testing their 4G networks in various cities across the country. Airtel has already launched it's 4G service in over 300 cities, but the network coverage currently isn't like full-blanket coverage, but more patchy. Hence the user experience has been quite mixed. But things will improve as all operators are working on war-footing to have some kind of good 4G coverage, atleast in the crucial markets, so that they don't lose too much of revenue-generating customers to the upcoming new competitor. Vodafone has been repeatedly announcing that it will launch it's 4G service in important cities like Mumbai, Kolkata, etc. in December'15 itself and then expand further to other large cities in the following months. Idea Cellular too recently announced plans to launch 4G service in about 150 cities/towns between January & June of 2016. Unfortunately, none of these three big operators have All-India 4G-compatible spectrum and hence they will ultimately get into Roaming Agreements amongst themselves to offer maximum coverage to their subscribers. 

Another thing that the existing incumbent operators will be worrying about is: rapid erosion in the Average Rate per MB they are able to charge after Reliance Jio starts commercial operations. At the moment the Big-3 are able to charge around 23 to 25 paise per MB. But I am expecting that the rates will rapidly fall to something like 10 to 15 paise per MB within 6 months of Jio's launch. So we can call it a double-whammy for all the existing operators. On one hand a part of the existing as well as incremental Data consumption will start shifting to Reliance Jio, while on the other hand the rates will also fall at a rapid pace in the initial few months. We could see some knee-jerk reaction in the first few months from all operators as they try to protect their revenues & market shares as much as possible. Things might start stabilising about 3 quarters after launch of Reliance Jio's operations.

Until now the combined 3G network capacity of all operators has been falling short of the market demand. Hence the user experience has been like 'kabhi khushi...kabhi gham'. Once Reliance Jio opens it's gates, a Huge Empty Network capacity will become available, which will try & pull subscribers from all angles. It might take a couple of quarters to analyse how long before the surging demand is able to completely consume the available supply (capacity). We will see rate corrections happening until the supply (network capacity) is substantially more than the demand. Things will only stabilise after that. As per my guess, we are barely 6-weeks away from getting to experience Reliance Jio's 4G services. So let's just spend these 6-weeks in anticipation of some big excitement!!

Reliance Industries Ltd. - Segmentwise Contributions Update.

Everybody knows that Reliance Industries Ltd. (RIL) posted it's best ever quarterly Net Profit figure for the Quarter ending Sept.'15. RIL's performance was boosted by it's two core business segments of Refining & Petrochemicals. All other segments had a subdued performance.

Here I will be sharing my analysis of Trailing-Twelve-Months numbers of RIL's segmentwise EBIT & Capital Employed numbers over the last 2 years and then present my expectations of how things could move over the next 2 years. First have a look at the Charts below:

In Sept'13, Refining & Petrochemicals together contributed about 88% of the company's Total EBIT of Rs.24,290 crores. Over the next 12 months, by Sept'14, RIL's Total EBIT grew by 14+% to Rs.27,765 crores. Oil&Gas, Retail and Media&Broadband segments posted faster growth rates, though on smaller bases, which pulled down the contribution from Refining & Petrochemicals segments to 84% of RIL's Total EBIT.

Over the last 12 months, i.e. for the period ending Sept'15, RIL's Total EBIT has posted a Y-o-Y growth of another 11+% to hit a figure of Rs.30,910 crores. Almost all this growth has come from the Refining business alone, which grew it's EBIT by a staggering 27% Y-o-Y. This alongwith the 5% growth in EBIT from Petrochemicals segment, pushed the contribution from these 2 core segments to 90% of RIL's Total EBIT. 50% drop in EBIT from Oil&Gas segment too aided this.

Now let's come to the other interesting part, i.e. Capital Employed in different segments. Between Sept'13 and Sept'15, RIL's Total Capital Employed number has increased by nearly Rs.1,00,000 crores. The Refining & Petrochemicals segments, which contribute around 90% of the company's EBIT, contributed just under 40% to this incremental Capital Employed number (36% from Refining & 3.5% from Petrochemicals). Part of the increase in Capital in the Refining segment could be because of the company's pile up of Crude Inventory, while the prices are low. 15% of the incremental Capital has gone towards Oil&Gas segment, most of it towards the company's Shale Gas subsidiaries in the US. Retail has consumed a negligible 1% of the incremental Capital. The remaining 44% of the incremental Capital has gone towards the Media&Broadband segment. Most of it towards the rollout of RelJio's 4G network.

If you look at the Chart alongside, more than 50% of RIL's Capital is now invested in businesses other than Refining & Petrochemicals, primarily in Oil&Gas and Media&Broadband. But the Revenue & Profit contribution from these segments is negligible currently. The contribution from Oil&Gas segment has been severely affected due to sudden & sharp fall in Global Crude Oil & Gas prices. This segment's growth is now linked to recovery in Oil & Gas prices.

The more interesting story will be the start of commercial 4G & Broadband services, slated to happen from the end of this year. The company seems to have done huge amount of ground work for a massive rollout, which has not been seen in India ever. January to March'16 will be the introductory launch phase for the company. There will be massive promotions across various media to increase the visibility of the Jio brand and all it's services across the country. Revenues for the company will start pouring in during this period, but it will be very small compared to the Expenses the company will entail towards this business & it's promotional activities. Hence we can expect the company to report a substantial EBIT Loss for this business during the quarter ending March'16. I am expecting the EBIT Loss to be anywhere in the region of Rs.3000 to 5500 crores. From April'16 onwards, the company's revenues are expected to grow at a very fast pace, which we will call the Ramp-up phase for the company. The revenues will keep increasing month after month, but the Expenses will grow at a much slower pace as most of the Operating Expenses will be steady right from Day-1. Hence the company's EBIT Losses will keep reducing with every passing month. I am expecting RIL's 4G & Broadband business to break-even at an EBIT level in about 6-8 quarters of the launch of services, i.e. by about June-December'17. These expectations might seem a bit on the optimistic side, but I think the company is going to be extremely aggressive in expanding this business and hence it could be an achievable target.

While the ramp up of RIL's 4G business will be happening, it's major CAPEX on the Petrochemicals side will also come on stream next year, which is expected to boost the company's Profits substantially. That means on one side the 4G business will report large losses in the initial few quarters, but at the same time the company's profits from the core business are expected to increase. The combined effect will mean that the Net Profit's may not get completely wiped out for anything more than 1 or 2 quarters. Beyond those 1 or 2 quarters, i.e. post June'16, it could be a double booster for RIL's profit numbers. On one side the 4G Losses will keep reducing with every passing quarter and profits from Petrochemicals segment will keep increasing till March'17 as the major CAPEX comes fully on-stream. FY'2017-18 will be the year to watch out for in terms of Reliance Industries Ltd's Financial performance. It could take RIL into a completely new trajectory.

Let's wait & watch if my expectations do turn out to be true!!

Happy Investing!!

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.

Reliance Industries Ltd's Q4 - Not as splendid as it looks!!

Ever since RIL's stock started rallying earlier this month, suddenly every News channel was repeatedly shouting that RIL is expected to report it's best ever Quarterly Net Profit with a sharp increase in Gross Refining Margins (GRMs) to around the $10 per barrel mark. And boy, did RIL disappoint??!! Not a All. Reliance Industries Ltd did post a record Quarterly Net Profit figure of Rs.6381 crores, which was 21% higher Q-o-Q, but just 8.5% higher Y-o-Y. RIL's Q3 Net Profit was expected to be lower because of the Inventory losses arising from sharp fall in Crude prices. In fact I would rate RIL's Q3 to be superior than Q4 because the company still managed to post a healthy profit figure despite huge Inventory losses.

In Q4 RIL did not face any further Inventory losses, was able to buy Crude at very low prices and the end-product prices were coming down at a slower pace compared to Crude prices, which was expected to boost the margins enjoyed by most Crude Refiners & RIL being the most efficient Refiner was expected to be the biggest beneficiary. The end result was RIL managing to earn record margins in it's Refining business, which is also the biggest contributor to RIL's revenues & profits. Have a look at the chart below which shows the Quarterly EBITA & Net Profit Margin percentages over the last many quarters:

The chart clearly tells us the story of Q4. Between March'12 to December'14, RIL's EBITDA margins have hovered in a range of 9% to less than 12%, never above that. In March'15 quarter, it has shot up to a staggering over 17%!!! The story is similar in case of Net Profit margin. It used to be in the 4.5% to 6.5% range until December'14, but shot up to over 9% level in March'15. So the profit margins have been clearly very unusual during this quarter and there is a very high possibility that these margins will come back close to the normal range within the next 1 or 2 quarters. 

( Click Here for Reliance Industries' Results Summary Page. )

Don't get me wrong. I am not at all negative about Reliance Industries Ltd's future prospects. The company will continue to do record utilisation levels of it's plants in the Refining & Petrochemicals businesses. It's ongoing CAPEX to expand capacities in Petrochemicals segment and improve efficiencies in the Refining segment is absolutely on track and is expected to boost the company's margins by about 2% over the normal operating range. But I don't want investors to get swayed by this Record Net Profit figure posted this quarter. Remember than the input as well as end product prices of RIL's Refining & Petchem businesses are nearly 30% to 40% lower than what they were a year ago. This is expected to keep the company's turnover at levels much lower than last year levels. In such a situation if the company's profit margins come back closer to normal levels, then the company's quarterly Net Profit number could drop considerably from the one posted in Q4-FY'15.

But there could be some positives coming from the Oil & Gas business in the coming quarters. Q4 was expected to be the worst quarter for all Oil & Gas producers as the International prices were at the lowest levels of around $50 per barrel mark. Since then the prices have shown signs of bottoming out and any improvement from these levels will boost the profitability of all players in this business. RIL's domestic production volume numbers were disappointing as expected & hence did no good in mitigating the fall expected from lower product prices. But the production from RIL's Shale JVs have shown handsome growth, continuing the trend from earlier quarters. The increased production helped arrest the drop in turnover from this business segment, but the profitability was expected to be impacted & so it did. EBIT margins from this segment were about 10% lower than normal, but we can say that worst is behind if the crude prices don't fall to levels lower than that seen in Q3 & Q4. As mentioned earlier, any improvement in crude prices coupled with increased production volumes will boost the company's turnover & profits from this business over the numbers posted in Q4.

Coming to RIL's Retail business, it was slightly on the surprising side. Q3 of every year has lot's of festivals compared to other quarters and hence the sales recorded by any Organised Retail company is generally higher in Q3 than in Q4, especially in the Same-Store-Sales comparison. This year RIL's Retail business has managed to post some bit of Q-o-Q growth in Q4 over Q3 and this is excellent news. It's planned expansion seems to be working well and FY'16 will be much better both for turnover growth & improved profitability. The Retail business will also be benefiting from the launch of RelJio's Telecom business, as and when it happens. 

Unfortunately, there is not much news regarding when the 4G launch will happen. As per law, RIL needs to have a operating network presence in 80% of urban centres & 50% of rural centres within 5 years of receiving it's spectrum. The 5-year period for the 2300 MHz band spectrum ends sometime in August-September'15 and hence everybody is expecting the company to start doing commercial roll-out from the current quarter. But things have become a little bit more complicated with the company aggressively acquiring spectrum in 1800 MHz & 800 MHz bands in the last 2 spectrum auctions. These acquisitions will certainly involve substantial changes in the roll-out plans of the company. Let's just wait & watch how RelJio's launch pans out, hopefully soon.

Reliance Industries Ltd. - Newer businesses are contributing to Growth!!

Traditionally Reliance Industries Ltd. (RIL) has always been known as the Indian behemoth with Global scale operations in Crude Refining & Petrochemicals businesses. Over the years RIL has expanded capacities in these businesses every 2-3 years and has now reached such a scale of operations that can be counted amongst the biggest across the world. Between FY'05 and FY'14, RIL's Total Income has expanded over 6 times to touch a level close to Rs. 4.50 lakh crores with 70% of it coming from the Refining business & 20% from Petrochemicals business.

But RIL has seen it's profit margins decline over the recent 3-4 years. In FY'11, RIL's consolidated EBIT margins were a little over 10%, while in FY'14 it had dropped to just over 7%. This was one example where the economies of scale theory did not work well. But a lot of it was because of substantial volatility in prices of products that RIL deals in, both on the raw material side as well as the end product side.

RIL has drawn a huge CAPEX plan for it's Refining & Petrochemicals businesses mainly aimed at improving efficiencies & ultimately improving margins. All these projects are expected to start showing impact on it's numbers from the second half of FY'16 and will be fully visible by FY'17. In December'14 quarter, RIL's EBIT margins in Petrochemicals business was almost 9%, the best figure in over 2 years, while that for Refining business was 4%, substantially lower than the best number it has seen in last 2 years. The new CAPEX plan is expected to boost it's EBIT margins by atleast 1.5% to 2%.

Enough of discussing RIL's primary businesses. Now let's completely focus on RIL's newer businesses, which it has entered and scaling up over the last few years. These business segments are: Oil & Gas production, Modern Retail and then the 'Others' segment, which comprises of Textile, Media, Broadband & other investments in Associate companies. In the June'13 quarter, these 3 business segments contributed Rs.7763 in Revenues & Rs.674 crores in EBIT. In December'14 quarter, i.e. in 6 quarters from then, the total contribution to Revenues jumped to Rs. 10,974 crores and Rs.1213 crores in EBIT, a jump of 41% and 80% respectively in just one & half years.

Out of the Total Revenues & EBIT from the 3 business segments, the Oil & Gas business alone contributed about 26% of the Revenues & 68% of EBIT in December'14 quarter. This is despite the fact that the Oil & Gas business suffered a huge drop in Crude Prices during the December'14 quarter. RIL's investments in Shale assets in US are paying healthy dividends currently. The Oil & Gas assets in India are not doing so well with flat to negative growth in production numbers in most assets. The revenues & profits from Oil & Gas business would have been much higher in December'14 quarter if Crude prices had not collapsed so much. Crude prices tumbled from $110 per barrel levels to $45 per barrel during that quarter. Since January'15, the crude prices have improved and are now hovering around the $55 to $60 levels. This business enjoyed EBIT margins of about 29% at a time when the prices were tumbling fast. So we can safely assume that profits will be decent even when Crude prices hover in the $50 to $70 per barrel range.

RIL's Retail business has continued to post healthy Q-o-Q & Y-o-Y growth over the last 3 quarters. The company has got aggressive on it's Retail footprint expansion & marketing. Even consumers seem to be shopping more in the recent months. And the best news is that RIL's Retail business has seen improving profitability in the last 3 quarters. From an EBIT of Rs.24 crores on a Turnover of Rs.3653 crores in March'14 quarter, the business has seen an EBIT of Rs.133 crores on a Turnover of Rs.4686 crores in December'14 quarter. With the Indian economy picking up pace, Inflation going down, we can expect the overall consumption demand to continue growing in the coming quarters & years. Apart from Retail stores, RIL will start e-Retail in a big way sooner or later. It has already started testing it via www.RelianceFreshDirect.com where consumers in Mumbai can make online purchases of Grocery & other Daily need items. With a vast nationwide presence, RIL can easily spread this business in many more cities over the next 1-2 years. There is immense scope for growth in almost all of RIL's Retail formats, once they get integrated with an e-commerce platform. Going by the recent growth rates, this business is expected to cross the Rs.20,000 crores in Annual Revenues mark before December'15.

Coming to the other businesses, I don't have the exact details of the performance of RIL's Textile business or investments in other Associate companies, which have been counted in the 'Others' segment. But it is more important to see 2 other important parts of this segment, i.e. Media & Telecom. We all know RIL is preparing for a mega launch of it's 4G-based telecom services, with a big push towards offering high-speed Internet services across 5000 cities & towns and lakhs of villages across the country. In order to be able to offer other complimentary services, RIL acquired majority stake in Network 18 Media & Investments Ltd. in June'2014. With this acquisition RIL is now the owner of a host of digital properties & TV Channels. Some of the popular constituents are TV Channels like Colors, CNBC TV18, CNN-IBN, IBN7, CNBC Awaaz & digital properties like HomeShop18.com, BookMyShow.com, Moneycontrol.com, etc. Revenues from this business probably started getting consolidated into RIL's 'Others' segment from Sept'14 quarter, i.e. Q2. This business reported revenues of about Rs.745 crores in Q2 and Rs.830 crores in Q3. So the jump we see in revenues of this 'Others' segment from Rs.1700 crores level to about Rs.2500 crores level in Sept'14 quarter is because of addition of Network 18 revenues.

The interesting part is that the 'Others' segment saw another big jump in revenues in December'14 quarter to over Rs.3400 crores level. I am speculating that this jump is because of RIL's Telecom & Broadband business. We have read that RIL has already done soft launch of it's Jionet WiFi services in nearly a dozen large cities, mostly in busy business areas of those cities. Each user logging on to Jionet WiFi service during this soft launch period is entitled to receive initial Free Usage limit, after which they will have to pay for usage. Reliance Jio Infocom (RelJio) had launched it's WiFi service in some parts of Ahmedabad, Surat & Baroda about a year ago. Apart from that there have been reports that RelJio has softlaunched it's WiFi service under the Jionet brand in several cities like Indore, Bhopal, Varanasi, Kolkata, etc. Apart from these WiFi Hotspots, RelJio has been showcasing it's WiFi service at several popular Trade Fairs and large College Festivals. There was one recent report which said that the Average Data Usage per customer at it's WiFi Hotspots is over 100 MB per day. Another report said that RelJio has applied to BEST in Mumbai for usage of it's Street Light poles to install it's WiFi equipment, which will enable the company to launch it's WiFi service over a much larger coverage area. I am sure RelJio will be using many such innovative techniques to ensure maximum WiFi coverage so that it's service becomes the primary medium of Internet access for maximum number of people. Reports suggest that the Commercial launch of RelJio's 4G and WiFi service should happen in April'2015.

The above chart shows the Capital Employed at the end of each quarter in each of the 3 business segments of RIL which I have discussed in this report. The Capital Employed in the Oil & Gas business has gone up from about Rs.53,000 crores in June'13 to about Rs.70,000 crores in December'14, majority of this extra Capital has gone into the company's Shale assets in US & Canada. These investments will reflect in substantial revenue additions in the coming quarters, provided the Crude prices remain above $50 or $55 per barrel level. The Retail business has negligible Capital Employed at around the Rs.6000 crores level, which suggests that the business is being run in a very Capital efficient manner. Despite strong growth in the number of stores and the stocking up of related Inventory of Goods at all these stores, the Capital Employed number has not gone up much. Now look at the Yellow bar in the chart. The Capital Employed in the 'Others' segment has gone up sharply from about Rs.28,000 crores in June'13 to over Rs.60,000 crores by December'14. That means a massive amount of about Rs.32,000 crores has been Invested in these businesses. As per information available & my estimates, about Rs.4000 crores of this has gone into acquiring majority stake in Network 18 business and most of the remaining Capital has gone into acquisition of spectrum in 1800 MHz band, laying of Optical Fibre Cable Network and setting up of 4G Wireless network on tens of thousands of towers. As per reports, RelJio will be using over 1,00,000 existing towers from companies like Bharti Infratel, Reliance Communications, VIOM, etc. to set up it's 4G-LTE network. I think the CAPEX in this business will continue at a rate of about Rs.3,000 to 4,000 crores per quarter on an average, atleast for another 4 to 6 quarters as the company keeps expanding coverage of it's 4G services. It will be interesting to see how the revenues from this business build up once the services are commercially launched in the coming months. I have posted my guesstimates of potential revenues & it's impact on RIL's overall numbers in an earlier article.

Happy Investing!!!

Reliance Industries Ltd. - Poised for some interesting times ahead

Look at Reliance Industries Ltd. It is amongst the largest companies in India on several counts. With Annual Revenues of about Rs.4.50L crores, Net Profit of over Rs.23K crores & a Market Cap of over Rs. 3L crores, it certainly is a Mega corporation. But look at it's current businesses. Over 90% of the company's revenues and about 80% of profits come from Refining & Petrochemicals business. And these businesses are not posting any handsome growth for the last many quarters. At best these businesses will grow in single digits or low double digits in the coming quarters.

A few years ago Reliance Industries Ltd stepped into new businesses of Oil & Gas production and Modern Retail. As we all know the Oil & Gas production business of the company has been a big disappointment mainly because the initial estimates & projections were very large & exciting, but the actual numbers have been quite lacklustre in comparison. Nevertheless this business is chugging along & profitable too. But it is difficult to predict if this business will grow to a much larger scale or not. Reliance's Retail business did have a false start initially, but the company has done well to make a smart comeback over the last 2-3 years. Reliance is now India's largest Retail company, having overtaken Future Group a few quarters ago. Eventhough the Retail business is currently contributing only about 3-4% of Reliance's annual turnover, it is growing at a healthy pace of about 15-20%. And the better news is that the business has reached break-even too at the operating level. With further expansion the economies of scale will further help the company improve profitability and sooner or later it will start posting Net Profit too. Reliance Retail already has over 2000 stores operational across all formats and cater to millions of customers across several large cities.

Now lets come to the most interesting part of Reliance's large investments: Broadband. Many of us have been hearing about Reliance Jio Infocom (RelJio) being the only company to hold broadband wireless spectrum across the country. We have been hearing this for the last over 4 years now, but we haven't seen any launches happening. As per regulatory requirements, RelJio needs to launch it's services in all service areas latest by second half of 2015. What was the company doing sitting idle with all that spectrum for nearly 20% of the license period?? Frankly I think it was an intelligent move. 4 years back the LTE technology was still at an experimental stage and all it's equipment were very expensive. Thanks to this delay, RelJio will be able to install equipment which is better evolved and at much lower prices. The technology is still very new even at a Global level, but availability of it's equipment is now much much better than what it was 4 years back. Over the last 3-4 quarters, the activity at RelJio has shot up with the company first signing up agreements with almost all Tower companies & then signing agreements with Equipment Vendors for implementation of BTSes across the country. The company has been laying it's own OFC across most of the important cities as it is anticipating a huge load of data traffic on it's Wireless Broadband network. The company had paid something like Rs.12K crores for the Broadband spectrum, but it is investing well over Rs.50K crores to setup all the related infrastructure across the country. These numbers are not too short of what any other Mobile Operator has invested in Infrastructure for a nationwide rollout. Going by these numbers, RelJio is planning to launch it's services in thousands of cities & towns and lakhs of villages in the very first year itself. To make things even more interesting RelJio has bagged 1800 MHz spectrum in 14 important circles, which can help the company jump right into regular mobile service competition as well.

I am expecting RelJio to launch it's services on 28th December'2014, Dhirubhai's anniversary and the phased rollout will happen over the first half of 2015. As per my estimates RelJio will be targeting to achieve Quarterly turnover of Rs.4K crores within the first 4-6 quarters of launch. RelJio could be posting a turnover of about Rs.10K crores in FY'2015-16 itself and will be close to breaking even at EBITDA level. Within a few months of RelJio's launch we should see a price-war in the Data business. If RelJio's service experience is good, then even a price-war cannot stop the company from capturing substantial incremental as well as existing market share from all other operators. RelJio could touch 10% market share figure in the Data business within the first 4 quarters itself, provided the initial customers are happy with the company's services. If there is a neutral-to-positive word-of-mouth about RelJio's services in the first 2 quarters, we could see many customers jumping from other operators to RelJio's networks to enjoy faster speeds and larger usage limits. The first 2-4 quarters from launch are going to be crucial.

If everything works out fine, we could see RelJio touching the Rs,50K crores turnover mark within the first 5-6 years and by then the company will be generating healthy Cash Profits and Net Profit too. The Retail business expansion alongwith the huge potential in the Telecom business is what will bring the exciting times for Reliance Industries Ltd & it's shareholders. The company's stock has been underperforming for the last many years now. There have been valid reasons for the same. The revival in Indian economy will also help boost demand for RIL's petrochemical products and who knows the company could get back into fuel-retailing in a big way too in the coming couple of years. There are many potentially positive things that could happen with the company. The stock price which has been languishing in the Rs.700 to 1100 range for all of last 6 years, finally could breakout above the Rs.1100 price levels in the coming quarters.