Reliance Jio Explained: Does 12-27% Tariff Hike Signals to Jio's IPO?

Udti udti khabar mili hai ki Jio ka IPO aa sakta hai. Jefferies, the renowned global brokerage firm, anticipates Reliance Jio making its stock market debut by 2025 with a jaw-dropping valuation of ₹92.40 lakh crore ($112 billion).
Jio can potentially raise ₹55,500 crore through its IPO if it sells a 5% stake.

The last IPO that came close to this amount was the LIC IPO worth ₹21,000; the Jio IPO (if it's actually happening) will be the biggest IPO India has ever seen.

What were the signs that led to this inclination? Was it the tariff hikes? Was it the 5G monetisation? Was it something else entirely or a combination of multiple factors?

Hooked yet?
Let's go…..
We have a lot of ground to cover.

The Story Behind The IPO Speculations

There have been no official announcements yet. But, Reliance's Annual General Meeting is coming up in August which may include confirmation of a possible IPO.

What led the analysts to believe that an IPO is on the horizon?

After a triumphant celebration of son Anant's wedding, the Ambani's might be turning their focus towards an IPO. Here's why:

a. Tariff Hikes: Jio just made its prepaid plans more expensive with 12-27% tariff hikes in the hopes of raising its Average Revenue Per User (ARPU).

b. 5G Monetisation: Did you know that in 2022, Jio planned to commit ₹2 lakh crore ($25 billion) to its 5G services? Jio has also increased prices by 46% for its 5G users, which is supposed to increase Jio's ARPU by 16-17%.

c. Valuation and Shareholding: Jio's value just skyrocketed! Jefferies revalued Jio after its tariff hikes and 5G monetisation efforts, and it's a whopping ₹11.11 lakh crore, roughly $133 billion.

All the above points suggest that an IPO plan might be in the making, but at what cost? Is RIL planning the IPO from the pockets of Jio customers?

It is also speculated that the private equity investor might rid themselves of their investments (15.25% of Jio Platforms) in Jio in the IPO.

Keep reading to understand the company's financials and market position.

How Was Jio Formed?

Did you know that Jio was originally Infotel Broadband Services Limited or IBSL?

Jio was registered as IBSL in Ahmedabad, Gujarat, in 2007. Then, in 2010, Reliance Industries (RIL) did what it does best and acquired a 95% stake in ISBL for ₹4,800 crore.

In 2013, IBSL became "Reliance Jio Infocomm Limited" or RJIL. Commercially, Jio was launched in 2015 as a beta program for employees & partners and became publically available in 2016.

Currently, Jio Platforms is 67.03% owned by the parent company, Reliance Industries. In September 2020, Reliance sold ~33% equity stake to raise ₹1.65 lakh crore (approximately $23 billion) to PE firms such as Vista Equity Partners, KKR, PIF, Silver Lake, L Catterton, General Atlantic and TPG.

Jio's journey to becoming a telecom giant has been remarkable!

Yaad to hoga, how Jio completely disrupted the market? It provided gigabytes of data to the masses at affordable prices. The public was accustomed to making do with 1GB of data per month. Jio got us hooked on the internet by providing 2GB of data a day. 

We couldn't even imagine ever going offline again. Is it any surprise that Jio quickly became India's largest mobile network operator, with over 46.72 crore (467.2 million) subscribers?

Jio's Business Model

Reliance Jio has been just a service provider until now, but soon, it might become an investment opportunity, too. Surely, you want to know about the business model.

Here's a look into how Jio works:

Who are Jio's Customers?

Jio's customer base is as diverse as it gets. It includes individuals (mobile services, JioApps, JioFi, etc.), households (JioFiber, Jionet Wi-Fi, JioHome and JioGames), and businesses (Jio Enterprise, JioMeet and JioPOS Lite).

Its customer segments are as follows:

a. Urban and rural consumers: The best part about Jio has always been its services, which anyone can afford. It was Jio that made telecom services available for all in India.

b. Low-income and price-sensitive customers: Jio's competitive pricing strategy had two benefits: It made high-speed internet accessible and gave reliable connectivity to all its users. 

c. Small and Medium-sized Enterprises (SMEs): Jio also helps SMEs improve their operational efficiency and reduce costs with its suite of digital services and solutions.

What Value Does Jio Propose?

Good services at good prices. That is Jio's value. But it can't be just that, right? Let's look at it in a bit of detail:

a. Affordable and Lightning-Fast 4G Data: Jio disrupted the market so much that people hardly remember what it was like to live life offline. After the initial free months, it made the internet accessible across India at great prices.

b. Voice and Messaging Services: Jio offered free voice calls and messaging services, a new standard in the Indian telecom industry that completely changed how people communicated.

c. Integrated Digital Universe: Jio didn't just offer affordable services. It also offered digital services in entertainment, e-commerce, education, healthcare, and finance, all wrapped up in an integrated bow.

d. Infrastructure and Seamless Connectivity: Jio gave us uninterrupted services. To do so, it made massive investments in its network infrastructure, and it paid off, too.  

Is Jio going to lose its selling point? Recent tariff hikes have been significant, to say the least. With an IPO in the works, it's possible more might be coming our way.
Can Jio manage to keep it affordable for its customers? Comment your thoughts on this.

What are Jio's Revenue Streams?

Jio doesn't just make money from our monthly recharges. It actually has a diverse revenue stream. Here's an overview of how Jio generates its revenue:

1. Core Revenue Streams

a. Voice & Data Services: Jio as a telecom service provider, gave us so many plans to choose from, prepaid and postpaid. From 1 GB a day to 3 GB a day plans, plus freedom plans, too, and so many other affordable choices. This is Jio's primary source of revenue.

b. Digital Services: How can we forget Jio apps? A whole suite of digital services which include:

• JioTV: Live TV streaming service with subscription options and free channels.
• JioCinema: On-demand video platform with movies and shows (acchi app hai, but ad bohot aate hai).
• JioSaavn: A freemium music app. Get some for free, pay if you want all.

2. Additional Revenue Streams

a. Devices & Accessories: Jio sells smartphones, routers, and other devices bundled with its plans or through its retail stores and online platforms.

b. JioBusiness: This arm caters to businesses, offering solutions like:

• Dedicated internet connectivity
• Cloud services
• Security Solutions
• Enterprise mobility solutions

And now you know how Jio earns its revenues.

Telecom Market Overview

Let's see where the telecom industry is and if the Jio IPO could be a good investment opportunity or not.

Indian Telecom Industry Standing?

With our population, we could be the 1st, but the Indian telecom industry is the second largest in the world. In April 2022, a huge 1.091 billion made its subscriber base.

India has a teledensity of 85.76%, including both rural and urban. When we separate these two, we see that the teledensity for the urban market is 133.42%, whereas for the rural market, it is only 59.44%.

There were 918.19 million internet subscribers, including both broadband and narrowband, by the end of September 2023. Such huge numbers! The remarkable thing is that over 40.91% of these subscribers were from rural areas!

This phenomenal rise in internet adoption is just the beginning. In March 2023, the average monthly data consumption per wireless data subscriber skyrocketed to 17.36GB from just 61.66 MB in March 2014.

What's Driving This Extraordinary Growth?

• Economical tariffs
• Mobile Number Portability (MNP)
• Expansion of 3G and 4G coverage

A combination of factors created the perfect recipe for the telecom industry's growth. But that's not all.

• The number of smartphones and digital services has multiplied like bunnies. As a result, subscribers are shifting toward more data-intensive activities. 
• Government initiatives like the Production Linked Incentive (PLI), Scheme for Telecom and Networking Products, BharatNet Project, and the Prime Minister's Wi-Fi Access Network Interface (PM) have had a huge hand in the growth of a strong telecom industry in India.

For now, these trends are all goody-goody, but is the Indian telecom industry close to saturation?

With over 500 million new internet users expected to come online in the next 5 years, there is still substantial room for growth in mobile and data services.

Future Growth Prospects

Did you know the Indian telecom sector contributes 6% of the total FDI inflows? In fact, India is the fourth largest in the world.

Kaafi impressive, right?

Can you imagine how many jobs such a large sector provides? It was a rhetorical question, so don't Google it just yet. The sector supports 22 lakh (2.2 million) jobs directly and creates opportunities for an additional 18 lakh (1.8 million) individuals indirectly.

FDI inflows in the telecom sector were mind-blowing between 2014 and 2021, surging by 150% and reaching $20.72 billion (₹6.87 lakh crores), which was previously $8.32 billion (₹6.87 lakh crores) from 2002-2014.
Kya ye 100% Foreign Direct Investment (FDI) ka kamal tha?
Seems likely!

The Union Cabinet, headed by Prime Minister Narendra Modi, has taken a bold step to fortify India's manufacturing capabilities and boost exports by introducing the Production-Linked Incentive (PLI) Scheme in the telecom and networking products sector.

This initiative will help India become self-reliant. In June 2022, the Department of Telecommunications (DoT) enhanced the PLI Scheme by incorporating the Design-led Manufacturing Scheme, offering additional incentives worth over ₹533.33 million.

The application window for this scheme closed on 20 July 2022, and so began a new era in telecom manufacturing.

The achievements of this initiative are noteworthy:

• A total of 31 applicants have been approved under the Scheme, including 16 MSMEs, 8 Non-MSMEs (Domestic), and 7 Non-MSMEs (Global).
• These companies are positioned to invest $450 million (₹37.125 thousand crores), generate 40,000 jobs, and achieve an incremental production of over $24.4 billion throughout the PLI Scheme's tenure.
• By February 2023, investments amounting to ₹1,330 crore had already been realised, setting a solid foundation for future growth.

With its ever-increasing FDI inflows and strategic government initiatives, this dynamic sector continues to be a ray of sunshine for growth and opportunity.

Reliance Jio Financials and Peer Comparison

Jio's financial performance in recent years has been strong.

Reliance Jio's consolidated revenue grew 23.6% year-over-year to ₹9,74,864 crore ($118.6 billion) in FY 2022-23. Increased tariffs, ramp-up of wireline services, and continued subscriber additions for mobility services drove this growth.

Jio's consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) increased by 24.4% to ₹1,53,920 crore ($18.7 billion) in FY 2022-23, led by the strong performance of the retail business. Jio remains the market leader in India's broadband network, with over 50% share of data traffic and 404 million mobile broadband users as of March 2022.

In FY 2022-23, Reliance Jio and its parent company, Reliance Industries, raised $3 billion through syndicated term loan facilities. This money was used to fund capital expenditures, including Jio's pan-India 5G rollout.

Overall, Reliance Jio has demonstrated robust financial performance, driven by its market leadership in the telecom sector and continued investments in expanding its network and service offerings.

Jio's Peer Comparison

We all know that Jio currently has a market share of over 40%. Since its launch in 2016, the company has consistently grown.

Jio also expanded into fibre-to-the-home services, providing broadband, TV, and telephone services. Speaking of Jio's competitors, Bharti Airtel is in second place, Vodafone Idea is barely hanging on, BSNL is left with measly crumbs, and MTNL, who?

Jio's competitors continue to lose ground. India's telecom market is highly competitive, and Jio has established itself as the market leader.

The question remains, 'Will the masses continue to favour Jio with the current tariff hikes and possibly more in the foreseeable future?"

The Bottom Line

Jio is a market leader, Jio is innovative, Jio is affordable and Jio shayad IPO ki behti Ganga me hath dho le.

Is it a rumour, pure speculation or something worth seriously considering? I can't tell you. Like me, you will have to wait for RIL's Annual General Meeting.

I know that terms like 'India's biggest potential IPO' sound very exciting, but that doesn't mean that the supposed Jio IPO will be a good investment. Always perform caution when it comes to investments.

Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.