Reliance Jio Valuation Analysis

Detailed Analysis of Reliance Jio (part of Reliance Industries)

Introduction

The Q4 results of Reliance Industries were released/ declared on 18^th April 2019. Let’s study the valuation of Reliance Jio in the whole Reliance Industries. There are possibilities of an IPO for Reliance Jio as well in coming couple of years. How is Jio performing? How much Reliance Jio vertical is contributing to the entire Reliance Industries? Let’s have a look at all these things:

History

• Before the split of the original Reliance company, Reliance Communications was the brainchild of Mukesh Ambani and not Anil Ambani. From that point itself, Mukesh Ambani had a keen for the Telecom business.
• After the split, Reliance Communications was handed over to Anil Ambani. At that time a non-compete was signed because of which Mukesh Ambani could not enter in to the Telecom business for some years.
• In 2013, the non-compete got over. That is when Mukesh Ambani started working towards again entering the telecom business. And today, Reliance Jio has become a very big brand.

Reliance Jio Overview

Till now, $36 billion (equity + debt + deferred payments) have been invested in Jio by Mukesh Ambani. This means that he has very long term goals with this business vertical. Now, Jio has started making profits and has started to add to the numbers in Reliance Industries.

Reliance Jio Operating Performance Details

1. Subscriber Base – 30 Crore . This number has been increasing every month and steadily. In 2016, Jio had a subscriber base of zero. From there, in just 2-3 years, they now have this huge subscriber base.
2. Average Revenue Per User (ARPU) – Rs. 126 per month. The ARPU number is very healthy.
3. Average Data Usage – 10.6 GB per user per month. Jio has made internet (data) affordable and with so many subscribers, this number has reached here.
4. Average Voice Consumption – 823 minutes per user per month. Jio has made voice calling a virtually free feature and has shifted all the focus towards data usage.
5. Distribution Channel – 10 lakh+ Retailers for Jio. This is the reason behind Jio being successful in acquiring such a huge subscriber base.

Jio Q4 Results

• Operating Revenue = Value of Services – GST
• From this point forward, the operating revenue won’t grow at 50%-60% rate but it could still grow at around 30%-40% rate.
• The QoQ growth of Net Profit is a disappointing number. This can be concerning from the growth perspective of Jio.
• But such hiccups can come in the future as well, but it won’t have much effect on Reliance Jio.

Reliance Jio Annual Results

• The net profit growth is not a sustainable one, but the company will still be able to maintain a profit growth rate of 30%-40% for the next 4-5 years.
• This can be said based on the aggressive actions Jio is taking.

Possibility of Reliance Jio IPO

• If the company is earning a net profit of around Rs. 3,000 Cr, while running a high growth phase, that time the market can give it PE ratio of between 40 to 50. The market can feel euphoric about it, which will not be surprising.
• If the Reliance Jio is separated from the main Reliance Industries, and an IPO is launched, then it can have a market capitalization of between Rs. 1.5 Cr lakhs to Rs. 2 lakhs Cr (based on the investment made in the company).
• The total valuation of Reliance industries is close to Rs. 8.78 lakh Cr. If this justified premium valuation of Jio is removed then the valuation of Reliance Industries comes to Rs. 6.78 lakh Cr, in which Reliance Retail is also hefty contributor.

Summary

1. India has become the highest data using country in the world, all thanks to Reliance Jio. Jio entered the telecom business with competitive and aggressive prices.
2. The 30 Crore subscriber base is the biggest advantage for Jio.
3. It is still in expansion phase. They are still diversifying and trying out different business options. For example, Reliance Industries also tried to buy Zee Entertainment.
4. Organic growth of Reliance is going on but the company is also focusing on inorganic growth.
5. Reliance Industries has created this big business as after 10-15 years, oil will not have the same market as of right now. The main oil business right now can be replaced by either Reliance Jio or Reliance Retail.