India’s Jio May Book Profit Next Fiscal Year, Bernstein Says

(Bloomberg) -- The telecommunications upstart backed by Asia's richest man will book its first profit at “normal” depreciation in the year starting April, analysts at Sanford C. Bernstein & Co. predict.

Reliance Jio Infocomm Ltd. has elbowed its way into the No. 1 spot among India's wireless carriers by offering free voice calling and cheap data services, undercutting incumbents Bharti Airtel Ltd. and Vodafone Idea Ltd. Jio, as the company is called, has already reported quarterly profit, but the figures do not reflect normal depreciation levels, according to a Bernstein report on billionaire Mukesh Ambani's Reliance Industries Ltd. conglomerate.

“Indeed, by FY23, we expect telco will overtake energy to become the largest Ebitda (earnings before interest, tax, depreciation and amortization) contributor,” wrote analysts including Neil Beveridge and Chris Lane in the report.

Key Insights

• Jio is in position to raise its share of the wireless phone market as one of its rivals, Vodafone Idea, has been stymied by billions of dollars worth of overdue fees to the government, while the other, Bharti Airtel, has had to raise funds to pay what it owes.
• Last year, Ambani said Reliance Industries will start preparing to list its retail and telecommunications units within five years.
• “If (more likely when) Jio is spun out from the broader Reliance group, it is likely to become one of the most attractive telcos globally from a scale and growth perspective,” the analysts said.
• Ambani's conglomerate dominates India's energy, telecom and retail in the same way Exxon Mobil Corp., AT&T Inc. and Amazon.com Inc. dominate their markets in the U.S., the analysts said.
• Ambani controls almost 42% of Reliance Industries and is Asia's richest man with a net worth of about $49 billion, according to the Bloomberg Billionaires Index.

Market Reaction

• Reliance Industries shares have more than doubled since 2016, when Jio was debuted. The stock is down 16% this year, after gaining 35% in 2019.

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• In FY20, the contribution from energy is expected to fall to 64% and in two years (FY22), Bernstein expects energy will fall below 50% of group Ebitda.
• By FY25, the energy-related business will account for around 30% of group profit.

To contact the reporter on this story: P R Sanjai in Mumbai at psanjai@bloomberg.net

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, Dave McCombs, Ville Heiskanen

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