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Reliance Jio to ride India’s telecom growth story: Fitch Ratings

Fitch Ratings said Reliance Industries’ unit Jio will be able to take advantage of the strong growth expected in India’s telecom sector in the future.

Jio is India’s biggest 4G operator and at present carries an estimated 5-10 times the data of all other wireless operators combined.

“We expect RIL to be able to take advantage of the strong growth potential in the India telecoms market,” Fitch Ratings said.

India has among the world’s lowest per-capita data consumption due to the lack of wired Internet. The total number of wired connection is estimated to be just around 35-40 mln in a country of 1.3 bln people.

As such, 4G wireless is expected to create a revolution in the country.

Jio has invested significantly in its telecom infrastructure and expects to cover 90% of the population by March 2018 (over 70% currently).

“We expect the robust infrastructure along with its affordable 4G data offerings to support Jio’s growth. Jio will face intense competition from the financially strong incumbent Indian telecom players; but we believe falling data tariffs will support significant expansion of overall data consumption in India over the medium term,” the rating agency said.

Two weeks ago, Fitch had said that it expected Jio to get only 2% of the total revenues of the sector for the ongoing financial year, which will end in March.

The RIL unit, on its part, has expressed the possibility that it may not start charging its users till the end of this financial year due to issues related to interconnection with existing operators.

Fitch said the company’s strong content offerings should drive consumption.

“We expect Jio’s wide range of offerings, including media and entertainment content (offered free till end-2017), to help in subscriber additions and data consumption, which will drive cash generation,” it said, adding that how much the company will invest in the second leg will depend on the growth of its customer base.

Jio is reported to have already invested about Rs 1.6 lakh cr to set up an estimated 2.82 mobile base stations. In the first phase, it will add another 45,000 base stations in the next six months.

Fitch said RIL is able to continue to invest in the telecom operations due to the strong cash generation from its petrochemical business.

“The robust operating cash flows from its refining and petrochemical businesses and relaxed investment requirements in these businesses will provide some cushion against any weak cash generation from the telecom operations for some time.”

And these cash generating businesses will continue to remain profitable, the agency added.

“RIL’s highly complex refineries and its flexibility to optimise both the crude diet and product slate enable it to consistently outperform regional refining benchmarks… RIL plans to complete the capex in the refining and petrochemical business by 1HFY18, with the majority being completed during FY17. Fitch expects the benefits from its investments in the refinery and petrochemical operations to start accruing from FY18 and support improvement in its profitability and operational cash flows. ”

It affirmed the company’s Long-Term Foreign-Currency Issuer Default Rating at ‘BBB-‘, with a stable outlook.

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