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MOSL: TELECOM-Renewed aggression; Focus on Jiophone and FTTH

Telecom: Renewed aggression; Focus on Jiophone and FTTH

 

In this note, we highlight key takeaways from Reliance Industries’ (RIL) AGM.

• RJio announced that it will equip JioPhone with popular apps like YouTube, Facebook and WhatsApp and that the device will be available at a lower price of INR500 from 21st July 2018. The company also announced the launch of JioPhone 2 – a higher-version device – at a price of INR2,999. RJio targets to reach 100m JioPhone users. This may exert pressure on the feature phone ARPU in the industry.
• The company also announced the launch of its fiber to the home (FTTH) broadband service JioGiga Fiber. However, it did not reveal the rollout timeline and pricing details. The service – for which registration will open from 15th August 2018 in 1,100 cities – will offer (a) high-speed data connectivity, (b) TV channels and Jio app, (c) video calling and (d) smart home solutions. The target is to reach 50m customers. However, unlike wireless, we believe that growth in the wired segment may be gradual, given the constraints around network deployment.
• For FY19, we have factored in (a) subscriber addition of ~108m and (b) ARPU decline of 16%, driven by aggressive push for low-ARPU JioPhones and continued undercutting in the smartphone category. We, however, believe that the trend would reverse in FY20, with ARPU accretion of 13%, albeit with lower subscriber addition of 18m as the company captures a sizeable market share.
• We expect revenue/EBITDA of INR554b/INR258b in FY21, implying a CAGR of 40%/56% over FY18-21. This should imply revenue market share of 24%/30% in FY19/20.
• Our DCF-based valuation of INR255/share remains unchanged, with implied EV/EBITDA of 11x on FY21E, given the high net debt of INR1,259b.