Reliance Jio’s Positive Impact on Reliance Industries Limited

Mukesh Ambani led Reliance Jio is the digital service provider operated by private conglomerate Reliance Industries Limited (RIL). The world’s largest start-up, Jio was launched commercially across all of its 22 telecom circles in India in September 2016.

Share market

Key analysts of the average revenue per user (ARPU) market in India predict that Reliance Jio will be able to garner 10% pre-tax returns on its capital. This analysis is based on Jio’s user base of ten crore subscribers, driving the company a monthly ARPU of Rs.400.

Although initially, industry experts feared that Reliance Jio’s $22 billion investment would earn the company sub-optimal returns, its tariff plans have made them reconsider. With a focus on profit as well as market disruption, Jio is playing a key role in improving parent company RIL’s valuation. RIL shareholders garnered Rs. 20,000 crore in terms of market returns over two weeks. This helped RIL to move up to become the second-most valued company in terms of market capitalization.

ARPU

Reliance Jio is employing its network capacity to create larger packets that will allow the telecom operator to maintain quality ARPU. Although there is a noticeable cut of 12% to 47% in terms of unit pricing of data plans offering 50GB to 95GB, these plans will garner Jio an ARPU of Rs. 430 every month. Reliance Jio’s current strategy will translate into a lower downward risk to the projected ARPU of the company. Market analysts predict its ARPU to range between Rs. 250 and Rs. 300 per month in FY17 to FY21.

The combination of Reliance Jio’s user base and its ARPU will help determine the effect this telecom venture will have on parent company RIL’s market standing. Analysts presently value it at a 10% pre-tax return on the capital employed (RoCE). If the subscriber base is expanded up to 14 crore subscribers and an ARPU of Rs. 300 is maintained, the RoCE will also be valued at 10%.

User base

Mukesh Ambani owned Reliance Jio users currently benefit from the welcome offer which entails free unlimited usage of data, voice, video calling, and Jio premium applications until the end of 2016. This offer is helping Jio garner an addition of almost 500,000 subscribers on a daily basis. While the market predicts that Jio will garner 2.5 crore subscribers by the end of FY17, its twin focus on user addition and retention may lead to the company surpassing the same before time.

The company is planning to improve its capacity of handling consumers to more than double the current figures. Its renewed plan aims at servicing 250 million users or more which is a stark increase compared to the earlier 100 million users. Having received a positive response to its welcome offer, the company is considering investing even more towards enhancing its network.

Summary

Reliance Jio helped RIL shareholders earn Rs. 20,000 crore returns in the share market.

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