Reliance Industries to further invest in Jio to expand fibre and content network

Fitch Ratings on Wednesday said that Reliance Industries will make further investments in its telecom venture, Reliance Jio, based on the actual growth and performance in the country. However, the oil-to-telecom conglomerate will continue investments towards the expansion of Jio’s overall mobile business and expand its fibre business. The group is expected to make an additional investment to increase the content for Jio’s ecosystem.

The investments will drive capital expenditure (capex) over the medium term for the group, Fitch Ratings said in a note on Wednesday.

“We expect RIL to continue to invest in its digital services business, including the fibre business, along with modest additional investment to increase the content for Jio’s ecosystem, one of the key drivers of data consumption. During FY18, RIL acquired a 25% stake in Balaji Telefilms, 5% in film company Eros International and music mobile app Saavn,” the ratings firm said. “We expect it [RIL] to make further investments based on the actual growth and performance.

Reliance Jio recently said that it has begun trials for enterprise solutions, fiber-to-the-home (FTTH) and the Internet of Things (IoT) services in the country. “The company continues to make progress for delivering Enterprise solutions, FTTH and IoT with beta trials initiated in a few locations. These services are being offered using the same integrated network and platforms,” the telco recently said in a statement. Jio said that these new services will lead to further data consumption on the network.

Fitch said that RIL’s digital services business named Jio is still small and evolving, and faces intense competition from incumbents. The company has made significant investments (around Rs 2.2 trillion cumulatively till end-March 2018) in Jio.

During the financial year ended 31 March 2018 (FY18), Jio’s first year of commercial operations, the company’s telecom operations expanded quickly and turned profitable. “We expect Jio to continue to register strong growth and its business to evolve over the medium term,” Fitch said.

Reliance Jio posted a net profit of Rs 510 crore for the fiscal fourth quarter, up 1.2% sequentially from Rs 504 crore in the third quarter. The telco had reported Rs 7128 crore operating revenue for the quarter, up 3.6% sequentially. Its average revenue per unit or ARPU fell sequentially at Rs 137.1 per subscriber per month, triggered by the sharp cut in its base offer to JioPhone users at Rs 49 per month and users moving to lower priced bundled plans. Jio’s ARPU stood at Rs 154 in the third quarter.

Fitch said that Jio’s telecom business is expected to continue its robust growth over the medium term. “We expect Jio’s subscriber addition to remaining strong, driven by its attractive high-speed 4G data and feature phone offerings,” it added.

The 4G entrant’s subscriber base reached 186.6 million by end-March 2018 after its first year of commercial operations, with a net addition of 26.5 million subscribers in the last quarter, driving its strong revenues.

While the Jio feature phone may result in lower average realisations in the near term, Fitch believes it also has the potential to support strong data consumption growth over the medium term.

Fitch Ratings has affirmed Reliance Industries Ltd’s (RIL) Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-‘, and its Long-Term Local-Currency IDR at ‘BBB’. The Outlook on the ratings is “Stable”, it said.

RIL’s ratings are supported by its strong business profile and robust asset quality. The company also has a strong market position in petrochemicals with strong vertical integration and flexibility in feedstock. However, RIL’s digital business is evolving and is currently small; though it provides strong growth potential, the agency said.