Tel
Reliance Jio
Update| 9 September 2016
Sector: Telecom
Sector Update | Telecom
Subs addition run-rate of 1lac/day – 100m target for Dec-16
Please refer our recent report
dated 1 September 2016
We conducted sales and distribution channel check to understand consumers’
response to RJio’s recently launched ‘Welcome Offer’, wherein users can access
free pan-India voice and data services. We also discuss the company’ sales target
and possibility of achieving that.
SIM card distribution channels:
SIM cards are currently distributed only via the
Reliance Retail channel. Distribution in mom-and-pop and modern stores will be
started in 15-20 days. RJio has mapped 2.5lac SIM distributors, and over the
coming quarters, we expect it to reach closer to the current number of SIM
distributors (4.5lac) and sellers of recharge vouchers (8lac) in the market.
1lac SIM sales/day:
The run-rate of SIM card sales since the launch of the
welcome offer is 1lac/day. With addition of more distribution channels (e.g.,
modern and mom-and-pop stores), our channel check indicates the run-rate to
go up 3-4x. Total current subscriber base is 5m.
100m target by Dec-16:
The internal target to reach 100m subscriber base is
about 3-4 months (i.e. Dec-16). Considering 3-4x growth in daily subscriber
addition from the current level of 1lac, monthly addition works out to be 9m,
leading to about 36m subscribers by Dec-16. Although this is far behind the
100m target, we believe it is still a big feat, and the current run-rate should
allow the company to reach the 100m mark by June-16. From overall industry
perspective, with 36m subscribers, RJio could reach about 30-50% of
RCOM/Tata Tele/BSNL’s subscriber base of about 60/86/100m.
Retention post welcome offer could be a challenge:
It will be interesting to see
if RJio is able to retain its subscribers after the end of the welcome offer. Based
on our channel check, there could be about 30-40% retention, which implies
about 10-15m subscribers.
The handset ecosystem maze:
a) LTE-led growth potential:
The number of LTE handset users could reach 100m
by Dec-16, from the current level of about 60-70m. These are largely premium
subscribers who may be averse to quick churn, albeit use second SIM option.
The industry’s monthly LTE smartphone shipment was 5-6m until last quarter,
which we expect to accelerate further. With this, total LTE handset user base is
expected to touch ~100-120m, accommodating RJio’s 30-40m subscribers (30%
market share).
b) JioFi contribution could become imperative for high growth:
For RJio to meet
its target of 100m subscribers in 3-6 months, a large portion of the uptick need
to come through JioFi, as the LTE handset base may not be able to fully
accommodate subscriber growth.
Aliasgar Shakir
(Aliasgar.shakir@MotilalOswal.com); +91 22 3010 2415
Jay Gandhi
(Jay.Gandhi@MotilalOswal.com); +91 22 6129 1546
Investors are advised to refer through important disclosures made at the last page of the Research Report.
9 September 2016
1
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Sector Update | Telecom
New price plans in the fray:
Our channel checks indicated that there is high
possibility of new tariff announcement by Dec-16 within INR200-300 ARPU
levels. This could be a key factor in determining high subscriber growth and
challenge operators’ pricing and capacity, given RJio’s high value offering.
Expect to reach 60m subs and INR216 ARPU by FY18E:
The welcome offer may
facilitate high subscriber addition given free offerings, but RJio’s key test will be
to retain subscribers at INR200+ ARPU. We have factored in about 30m
subscribers by FY17E (~4m monthly subs addition) and 60m by FY18E at ARPU
of INR216. This leads us to assume EBITDA loss of INR51b and IRR of 7.5%.
The
key monitorable will be whether the company can reach 60m subscribers by
March-June’17 with ARPU of INR 200+. This will be nearly 9-12 months ahead
of our expectation.
Exhibit 1: Key Financials
FY17E
Revenue (INR m)
Subscribers (m)
ARPU (INR/month)
Total Expenditure (INR m)
Consol. EBITDA (INR m)
EBITDA margin (%)
12,150
30
210
36,439
-24,289
-200%
FY18E
116,802
60
216
167,742
-50,940
-44%
FY19E
201,834
84
234
218,773
-16,939
-8%
FY20E
281,558
102
252
263,118
18,440
7%
FY21E
361,257
120
271
306,037
55,221
15%
FY22E
445,030
134.4
292
346,314
98,716
22%
Source: Company, MOSL
9 September 2016
2

Sector Update | Telecom
Story in Charts
Exhibit 1: RJIO’s tariff plans
Maximum Retail Price (INR)*
Benefits:
i) Local and STD voice calls
ii) Local and STD video calls
iii) 4G LTE data
iv) 4G LTE data - night time (2am to
5am)
v) Free WiFi data (post expiry, WiFi
data will be charged at Rs.50/GB)
vi) Free Local and national SMS
100 MB
All local and STD voice calls free in home and national roaming
All local and STD video calls in home and national roaming will be charged only for data usage
750 MB
300 MB
-
-
100/month
4 GB
8 GB
20 GB
2 GB
4 GB
10 GB
20 GB
Unlimited
40 GB
100/day
70 GB
120 GB 150 GB
35 GB
60 GB
75 GB
19
129
149
299
499
999
1499
2499
3999
4999
Unlimited
200 MB
1.5 GB
100/day
vii) Subscription of Jio apps
viii) ISD tariffs
ix) ISD tariffs (free minutes)
Validity of Benefits -- Prepaid (days)
Validity of Benefits -- Postpaid (days)
Free Subscription of Jio Apps
(data used for Jio applications, video calls and other content available on internet would be uniformly
debited against
plan data allocation)
-
-
1
Not
Available
-
-
7
Not
Available
-
-
28
1 month
-
-
21
Not
Available
-
28
Discounted ISD tariffs in 61 select countries
-
28
30
28
50
28
1 month
Source: Company, MOSL
80
28
100
28
Exhibit 2: RJIO’s price plan – Rates at ~INR130-150/GB
ARPU
gb
Price/gb
Validity (days)
Monhtly ARPU
19
0.1
190
1
570
129
0.75
172
7
553
149
0.3
496.7
28
160
299
2
149.5
21
427
499
4
124.8
28
535
999
10
99.9
28
1,070
1,499
20
75
28
1,606
2,499
35
71.4
28
2,678
3,999
60
66.7
28
4,285
4,999
75
66.7
28
5,356
Source: Company, MOSL
9 September 2016
3

Sector Update | Telecom
Story in Charts
Exhibit 3: Subscriber additions (m) and market share (%)
Subsriber additions (m)
Subscriber market share
9.5
10.5
10.2
6.4
282
361
445
Exhibit 4: Gross revenue (INR m) and RMS (%)
Gross revenue (INR b)
RMS
15.6
17.8
5.2
2.8
30.0
FY17E
30.0
FY18E
7.0
8.3
13.1
24.0
FY19E
18.0
FY20E
18.0
FY21E
14.4
FY22E
12
0.7
117
FY18E
202
FY19E
FY17E
FY20E
FY21E
FY22E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Subscribers (m) and ARPU (INR/month)
Subsribers (m)
ARPU (INR/month)
252
271
292
Exhibit 6: Data traffic (b MBs) and realizations (INR/MB)
Data Traffic (b Mb)
Data realizations (INR/MB)
0.14
0.13
0.12
0.11
0.11
0.10
210
216
234
30
FY17E
60
FY18E
84
102
120
134
68
932
FY18E
1,714
FY19E
2,480
FY20E
3,315
FY21E
4,254
FY19E
FY20E
FY21E
FY22E
FY17E
FY22E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 7: Cost analysis (% of revenues)
Ad expense
Employee Expenses
Spectrum and license costs
69
99
34
20
11
67
21
29
15
19
11
49
9
21
10
18
11
40
Subscriber acquisition/servicing and admin costs
Access and Roaming Charge
Tower Rental Cost
6
17
8
16
11
35
5
14
7
15
11
32
4
13
6
13
11
31
FY17E
FY18E
FY19E
FY20E
FY21E
FY22E
Source: Company, MOSL
9 September 2016
4

Sector Update | Telecom
NOTES
9 September 2016
5

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Sector Update | Telecom
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Story in Charts
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