Reliance Jio a $120 billion enterprise: Brokerage Sanford C. Bernstein

Brokerage Sanford C. Bernstein estimates the telecom market leader’s ARPU – a key performance metric – to jump by as much as 33% and 64% to Rs 223 and Rs 275 by end-FY24 and end-FY27 respectively.

Reliance Jio’s enterprise valuation has been sharply revised upwards to $120 billion from around $81 billion now on expectations that the telco will report strong average revenue per user (ARPU) growth over FY23-27, driven by higher data demand, 4G upgrades, and potential tariff hikes over the next three years, say analysts. 

Brokerage Sanford C. Bernstein estimates the telecom market leader’s ARPU – a key performance metric – to jump by as much as 33% and 64% to Rs 223 and Rs 275 by end-FY24 and end-FY27 respectively. It has modeled a 10% (higher) tariff over FY23 and also estimates modest conversions of feature phone users to smartphones for driving stronger ARPU. 

“Our calculated enterprise value for Jio is $120 billion based on updated estimates for subscriber adds and ARPU,” said Bernstein in a note. It added that Jio’s estimated ARPU growth would also help expand the company’s operating margins (read: Ebitda margins) from 49% in FY22, to 55% by FY24 and to 58% in FY30.

Earlier, Jefferies had pegged Jio’s valuation at $81 billion after the fiscal fourth quarter results. The telco’s net profit in the March quarter had risen around 16% sequentially to Rs 4,174 crore on an 8% on-quarter growth in revenue from operations at Rs 20,901 crore. Jio’s ARPU grew 11% sequentially to around Rs 168 in the fourth quarter helped by the tariff hike and improved subscriber mix.

Japan’s Nomura Research expects Jio’s ARPU growth to continue as the full impact of the 20% tariff hike taken last December is slated to play out through April-September as the telco has a higher proportion of subscribers on longer validity plans. 

Analysts also estimate Jio’s overall broadband user base to grow at 48% compounded annually over FY22-24, helped by strong demand for fast internet services and rising availability of fiber connections across Tier 2/3 cities. This has been helped by further consolidation of its leadership in the home broadband services market. 

BNB Paribas expects the scale-up of Jio’s home-broadband business to continue over the next few years as penetration levels are still very low, given that less than 5% of households have a Fiber-To-The-Home or `FTTH’ connection. The company’s home broadband user base has more than doubled in FY22 to 5.3 million (from 2.6 million in FY21) and stood at 5.6 million in April, according to latest subscriber data collated by the telecom regulator. 

Analysts expect Jio to report steady subscriber additions in coming quarters as its prolonged clean-up of low-paying and dormant users is over. Removal of low value users was largely caused by upward revision of its introductory offer on its long-term JioPhone subscription plan to Rs 899 (for 336 days) from Rs 749 earlier. 

Bernstein estimates Jio’s mobile user base to grow at 2% compounded annually over FY22-24 to reach 418.5 million by FY23, 426.9 million by FY24, 466.5 million by FY27 and 509.7 million by FY30.