Mukesh Ambani-owned Reliance Jio is eyeing an initial public offering that may also coincide with its climb to the top of the mobile communications market. The Reliance Industries Limited (RIL) subsidiary already has the second biggest market base of 31.7 per cent nipping at the heels of market leader Vodafone Idea that has 32.2 per cent share. After having overtaken Bharti Airtel, which now has 27.3 per cent share, with aggressive pricing policy, Jio now hopes to become the top player by early next year, reports say.
RIL, however, wants to first clean up its books by hiving off the fibre and tower assets to two infrastructure investment trusts (InvITs) it has created with external investor participation, a report in the Economic Times says. The report cites sources as saying that the IPO plans have advanced much through several meetings the company's top management had with banks and financial advisers.
"The telecom company has informed bankers that it expects to topple competition on the subscriber front shortly, which would bring in more revenue, and roll out its fibre to the home (FTTH) network, all of which will ensure a successful IPO," the report quotes an unidentified source as saying. Another source said that concerns "were raised over Jio's falling average revenue per user (ARPU)," a key industry parameter. The ARPU of Jio, that began operations in 2016, dropped for the fifth straight quarter to Rs 126.2 in March quarter from Rs 131.7 in the preceding one. Meanwhile, rivals Airtel and Vodafone managed to improve ARPU sequentially, signalling that their customers subscribe to higher tariff plans.
Jio was the only telco to post profits in the March quarter, up 65 per cent year on year against a 56 per cent rise in revenue, the report says. But sequential profit growth was 1 per cent in the March quarter against 22 per cent in the previous quarter as the company was hit by a fall in ARPU and higher network cost and rising depreciation and amortisation expenses.
The telecom unit's enterprise value is pegged at around Rs 4.41 lakh crore, according to a note by brokerage IIFL. Rival Bharti Airtel, which has yielded the top position in market share to Vodafone and fallen to the third position behind Jio, has a market capitalisation of nearly Rs 1.79 lakh crore, at the close of trade on Thursday. Its stock closed 2 per cent higher at Rs 348.65 on the Bombay Stock Exchange (BSE). Vodafone Idea share ended 4 per cent higher at Rs 11.90, giving it a market cap of over Rs 34,195 crore.
RIL has apparently made it clear that the IPO could take place only after the recently demerged fibre and tower businesses – Jio Digital Fibre Pvt Ltd and Reliance Jio Infratel Pvt Ltd respectively – get monetised via external investments, according to media reports. Earlier reports said Brookfield Asset Management is close to investing in the portfolio of 170,000 towers currently valued at around Rs 36,000 crore. After transferring of debt to the tune of Rs 1.07 lakh crore to the two demerged units, Jio's net debt stood at Rs 67,000 crore by March-end. "Since regulatory guidelines state that the telco can be listed after three years of financial reporting, the IPO cannot come before March 2020. But that will be too early – it's likely late 2020 or even in 2021," said one of the people cited above, according to the report.
The return to power of Prime Minister Narendra Modi heading the Bharatiya Janata Party (BJP), seen to be more business-friendly, may also encourage companies to go public as the investment climate is expected to improve. Reliance Jio wants fresh funds to expand the 4G network and take part in the imminent 5G spectrum auctions.
