Jio's capex outlay of $25 billion for the roll out of 5G and scale up its home broadband were the two key takeaways from RIL AGM, foreign brokerage Jefferies said in a report.
Monetization of this capex will require higher revenues in JioFiber, market share gains in mobile, revenues from enterprise clients and tariff hikes. We raise our revenue/Ebitda estimates by up to 3-5 per cent but lower PAT estimates by 2-4 per cent. Despite higher capex, leverage remains comfortable at 2.2-3.7x Ebitda given strong 27 per cent Ebitda Cagr over FY22-25, the report said.
At its AGM, management highlighted that its JioFiber is scaling up well with 2 out of 3 new customers choosing JioFiber. The company has embarked on an ambitious plan to connect 100m households through fiber and/or through its fixed wireless access (FWA) service, Jio AirFiber. Reliance's 1.1m route km of fiber which is 3-4x that of Bharti and Vodafone Idea and investments in 700MHz/26GHz spectrum should help drive this business. With fiber penetration still low at 7 per cent of households, there is enough scope to drive this up in our view, Jefferies said in the report.
Management emphasized that Jio is going ahead with Standalone 5G rollout unlike most global peers as it will allow Reliance Jio to offer benefits of ultra-low latency, edge computing and network slicing. RIL plans to roll out 5G network in key cities in the next two months and have pan-India coverage by December 23. The company plans to invest $25 billion in its network which includes the $11 billion spectrum commitments made in the recently concluded spectrum auctions, the report said.
Jio's approach to 5G has striking similarities to its approach to 4G with the company investing aggressively-potentially ahead of time to create a state-of the-art network. For a 10 per cent ROCE on $25 billion investment, Jio will have to earn $2.5 billion/$7-8 billion incremental Ebit/revenue.
Every 10m additional home-broadband subscribers could add $0.9 billion revenues. In mobile, we expect the market to grow to $33 billion by FY24 and an incremental market share gain of 5 per cent would add $1.7 billion revenues. This still leaves $4-5 billion revenue to either come from enterprise applications and/or further tariff hikes.