Jio Witnessed 22 Million Heavy Voice Subscribers Churn in Last Quarter: SBI Caps Securities

Reliance Jio witnessed churn of 22 million heavy voice subscribers and its ARPUs have not improved despite tariff hikes as most of the subscribers are on the 84-day plan, analyst firm SBI Caps Securities has said, adding that net subscriber adds were muted due to churn of heavy voice users.

Jio's gross subscriber additions continue to be driven by Jio Phone models. The churn of 22 million heavy voice subscribers may have led to some adverse revenue impact this quarter.

Contribution from Jio Phone models continues to trend upwards, as such ARPU improvement was not seen much in this quarter. The improvement on account of December tariff hikes will be meaningfully visible from Q1FY21, SBI Caps Securities said.

Jio's Q3FY20 revenue was up 6 percent QoQ, net subscriber adds were muted due to churn of heavy voice users because of IUC tariffs and the Key focus area for Jio seems to be driving FTTH and enterprise markets. The ARPU improvement seen early FY21 onwards and no respite to incumbents on AGR issue may drive accelerated market share gains for Jio in the near to medium term, it said.

Jio reported revenue growth of 6 percent QoQ and EBITDA growth of 8 percent QoQ. One of the key highlights of the quarter was that Jio lost 22 million heavy usage smartphone subscribers which resulted in flat ARPUs despite two tariff hikes taken in the quarter.

Further, data consumption per subscriber moderated to 11.1GB/month (down 5 percent QoQ) while voice minutes of use (MoU) were reported at 760 mins/user (down 4 percent QoQ). The company also became a net recipient of IUC revenues this quarter onwards and some of the revenue growth during this quarter is also helped by improvement in traffic mix and IUC revenues.

If it was not for IUC revenues, ARPUs could have seen some marginal decline in this quarter as per our analysis. EBITDA margins were up 70 bps QoQ at 40 percent. EBIT margins rose 140 bps QoQ to 27.2 percent while PAT increased 36 percent QoQ to Rs. 1,350 crores after recognising an exceptional charge of Rs. 177 crores (estimated liability of the AGR dues), the analyst firm noted.

With Jio starting to charge for IUC mins, outgoing IUC calls as a percentage of total mins has come down from 62 percent to 48 percent in just the December 19 quarter itself. Jio is focusing on transitioning its FTTH test users to commercial plans by offering set top boxes which offer content and drive user engagement along with data usage. The Company believes network utilisation is still low hence it can handle more subscribers with limited capex and existing spectrum.

Q3FY20 capex reported at Rs. 3,000 crores (digital capex Rs. 2,500 crores) vs. Q2FY20 capex is Rs 5,000 crores. Q4FY20 quarter is showing healthy data consumption trends, and post tariff hikes, there is a shift in some subscribers moving from three month plans to two month plans. For Jio, Gross debt is Rs. 96,000 crores, capex for creditors Rs. 45,000 crores while outstanding spectrum liabilities are Rs. 19,000 crores and interest accrued Rs. 5,000 crores, SBI Caps Securities said.

The report said 22 million subscribers moving from Jio may have accrued to incumbents and we may see some gains particularly in Bharti on account of this in Q3FY20 numbers.

Secondly, the overall impact of tariff hikes is likely to be subdued for incumbents as well in Q3FY20 and on similar lines will be visible for them from FY21 onwards.

Separately, the recent dismissal of the review petition filed by the telcos in the AGR case weakens the visibility on Vodafone Idea's survival but difficult for us to model any subscriber gains for Jio till the time we get complete clarity on this aspect, it pointed out.