Why JP Morgan Says Jio’s Listing Will Be Positive For Reliance

Reports claim that Mukesh Ambani is deliberating an initial public offering of Reliance Jio late 2018, or early 2019

(Photo: The Quint/Rahul Gupta)

Mukesh Ambani-owned Reliance Jio Infocomm Limited’s listing could be a positive for Reliance Industries Limited (RIL) as it would help in the price discovery of its digital offerings while potentially directing some cash to the parent company.

That's what JP Morgan says would happen if India’s newest telecom operator chooses to make its capital market debut. Ambani is weighing an initial public offering of Reliance Jio as soon as late 2018 or early 2019.

Jio, which hasn’t made a profit since its official launch in 2016, is aiming to improve its financial performance before any share sale, people with the knowledge of the matter said to Bloomberg, asking not to be identified because the information is private.

Investors value Jio primarily as a traditional telecom company, however, its product offerings span across the digital chain including mobile, broadband, entertainment, and ecommerce, JP Morgan said in a report. These offerings could potentially be “better valued” if Jio were to be separately listed, it added.

Measuring the telecom operators’ performance based on key parameters such as subscriber addition, steady increase in tariffs, and a positive operational profit in the first quarter of commercial operations, JP Morgan expects Jio to report a profit in the third quarter of the current financial year “ahead of schedule”.

In the September-ended quarter, Jio’s average revenue-per-user stood at Rs 156.4. That compares with Rs 154 blended average revenue-per-user reported by Bharti Airtel Limited

At the consolidated level, RIL’s net debt has increased materially as spending in core projects coincided with capital expenditure for Reliance Jio. While the core projects should start delivering strong operating profit, a Jio listing should “potentially upstream some cash to parent RIL”, where it has invested over Rs 2 lakh crore, the brokerage said.

Other Highlights

1. Jio is tracking ahead of forecasts in terms of subscriber additions, earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins, and profit breakeven.
2. It has delivered on all targets so far; next is diversifying the revenue base.
3. Jio is expected to be the key driver for RIL stock price in 2018 as well.
4. The company’s EBITDA will increase from Rs 24,000 crore in financial year 2019-20 to Rs 36,700 in financial year 2021-22.

(This article was originally published on BloombergQuint)

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