However, the good news is that the management also indicated that the SIM consolidation is largely behind the company now. Analysts share this optimism. “We believe Reliance Jio has now written off most of its inactive subscribers and from here on, Jio should start seeing modest subscriber additions," said Kunal Vora, head of India equity research at BNP Paribas.
Jio’s active subscriber ratio has risen to 94% over the past few months and is not far behind Bharti Airtel’s 98%, pointed out IIFL Securities Ltd.
“As per Trai (the Telecom Regulatory Authority of India) data, Jio cumulatively lost 13 million net mobile subscribers in January and February; this implies modest net adds in March," said the IIFL report of 8 May.
As such, Jio’s subscriber additions should start to improve hereon. In Q4, its average revenue per user (Arpu) rose 10.6% to Rs167.6 per subscriber per month, helped by increases in tariff effected in December and better subscriber mix.
There could be more upside to Jio’s Arpu because of the hikes. For Jio, the benefits of price hikes take a couple of quarters to reflect in Arpu and revenues, analysts pointed out.
On the other hand, it has been observed in the past that close competitor Bharti Airtel tends to see most of the benefit of tariff hikes immediately. One reason for this gap is the higher share of customers with long duration packs for Jio, according to analysts.
Nevertheless, this also means that Airtel is set to outperform Jio in Q4 on revenue growth.
Vora expects Airtel to report 12% sequential growth in its mobile revenues in Q4, beating Jio’s 8% sequential revenue growth. Airtel is scheduled to announce its Q4 results on 17 May. Airtel has fared better than Jio even on the net subscriber additions in January and February, according to the latest data from the telecom regulator.
Meanwhile, investors should watch how capital expenditure shapes up. Jio’s higher capex in FY22 has weighed on free cash flow and was a disappointing factor. Going ahead, a key monitorable for the two companies, would be the upcoming 5G telecom spectrum auctions.
“As telecom companies tend to overspend while bidding, auctions become a negative trigger. However, this time expectations are that they will be more disciplined. Aggressive bidding does not bode well for investors’ sentiment towards the sector," Vora said.
