Network costs increased by double digits, net debt increased

The main takeaways from the AR FY22 from Jio and JPL are:

1) Jio’s network cost per tower remains lower but has increased faster than Bharti Airtel’s.

2) There was a sharp increase in equipment investment compared to FY21 and FY20.

3) Net Debt + Liabilities to EBITDA decreased from 1.44x at the end of FY21 to 2.45x at the end of FY22 – mainly on spectrum purchases – and IIFL Securities analysts expect this to exceed 4x in the first half of FY23, after the July 2022 auction.

4) The 700 MHz band will allow Jio to tackle the high ARPU segment, but the 700 MHz handset ecosystem will need to improve quickly, and Jio will also need to accelerate its market execution, according to analysts at IIFL Securities.

5) Although they have maintained EBITDA estimates, short-term PAT estimates predict higher capex cuts.

6) They increased the EV estimate from $88 billion to $90 billion, but this is offset by higher debt.



Network costs have increased by double digits; other fixed expenses year-on-year

Jio Reported Network Operating Expenses + ROU Asset Depreciation + Financial Lease Expenses increased 16% YoY in FY22, after recording a 26% increase in during FY21. Jio saw a double-digit year-on-year increase in network costs per tower, and the gap to Bharti Airtel narrowed. Other expenses were flat year-on-year in FY22, after growing alongside revenue in the prior 2 years.

Net debt increased, while effective cost of borrowing remained stable

In FY22, an unfavorable change in working capital caused OCF before interest to decline 4% year-on-year to Rs313 billion, despite EBITDA growth of 22% to Rs376 billion rupees. Capital expenditure related to capacity building rose sharply to reach 237 billion rupees. This led to a drop in the FCF pre-spectrum payout to Rs 70 billion from Rs 191 billion year-on-year. Although net debt + liabilities doubled year-over-year in FY22, the effective interest rate remained stable. Net debt + liabilities are expected to double again in the first half of FY23 after the recent spectrum auction.

Other observations

1) Net current assets as a % of sales have gradually deteriorated to -4% compared to -19% over the last 4 years.

2) Consistent with Jio’s Related Party Transaction Disclosure, commission paid to Reliance Retail (RR) as a % of Jio’s revenue increased sharply to 3.4% in FY22 from 2 % in fiscal year 21.

3) The handset debt has been fully repaid.

4) Bank guarantees provided by Jio decreased year-on-year – from Rs 56 billion to Rs 26 billion – after the implementation of the telecom reform package.

Ann J. Cox