Reliance Industries’ telecom arm Reliance Jio is expected to continue seeing flow-through of the July 2024 tariff hikes in its average revenue per user (ARPU) till Q2FY26, as its customers on longer duration packs complete the recharge cycle, analysts said.
However, there is less visibility on the telco’s incremental margin growth, they added, since it has seen flat to marginal growth in Ebitda margin over the past few quarters, despite subscribers and ARPU growth.
Jio’s ARPU grew 1.43% sequentially at Rs 206.3, ahead of analyst estimates of Rs 205, on the back of the flow-through of past tariff hikes.
“Jio has historically taken the longest to show the full impact of tariff increases due to a high proportion of users on 3-month/6-month/annual plans,” an analyst from JP Morgan said.
ARPU is also expected to be buoyed by the growth in home broadband footprint, which has higher ARPU than mobile business, analysts added.
The telco’s net mobile subscriber additions came in at 6.1 million in Q4, and quarterly churn reduced to 1.8%, compared to 2% in Q3, as sim consolidation tapered and migration to BSNL stemmed. The firm’s home broadband base grew by 1.5 million q-o-q, driven by acceleration in fixed wireless access (FWA) uptake.
While topline levers of subscriber growth and ARPU bear positives for the telco, analysts said that incremental margin acceleration has been a challenge for the firm and the trend is likely to continue on the back of elevated selling, general and administrative (SG&A) and other costs.
The telco’s Ebitda margin was flat q-o-q at 52.8%, and showed 40 basis points growth when compared with Q4FY24 margins of 52.4%.
“Over the past two years, Jio’s business has grown by 28%, however, its Ebitda margins have remained flat at 52-53% levels, implying limited operating leverage,” an analyst from Jefferies said.
Analysts from ICICI Securities said that the telco has seen higher inflation across cost items, which has restricted Ebitda margin expansion. SG&A costs may continue to be elevated as the telco pushes for customer acquisition for FWA and fibre-to-the-home initiatives to scale up to its stated customer target of 100 million homes.
While the management has not given any guidance on tariff hikes, analysts factor industry wide hikes in Q2FY26, which will help maintain ARPU momentum.
With majority 5G deployment over, and phase 1 of FWA deployment almost completed, Jio’s capex of Rs 41,600 crore for FY25, should come down significantly in FY26, analysts added.