Reliance Jio sees large opportunity in India’s small businesses

In late August, when Reliance Industries Ltd (RIL) hosted its annual general meeting amidst the usual fanfare, Mukesh Ambani, chairman of the company, laid out his vision for the company over the coming years. While RIL’s AI and deeptech initiatives grabbed the headlines, Ambani’s statements about the company’s telecom arm, Reliance Jio, were no less ambitious. Ambani declared that Jio would double its revenue and EBITDA (earnings before interest, taxes, depreciation, and amortisation) within the next 3-4 years.

With the telco already far and away the market leader in terms of retail users, boasting nearly 500 million subscribers in its fold, it is clear that Jio is now looking at the next stage of its evolution—monetisation. However, if it intends to double its revenue in the coming years, Jio cannot rely on its retail user base alone.

Reliance Jio posted operating revenues of Rs 26,478 crore for the quarter ended June 2024—a 2% QoQ growth. The ROCE (return on capital employed) for Airtel and Jio continues to be single digits, and requires another 20% hike in tariffs for this to get to the mid-teens, Goldman Sachs noted in a report published on September 5. In July, Jio and its rivals Airtel and Vi (formerly Vodafone Idea) raised tariffs by 10-25%. Prior to this, Jio’s average revenue per user, or ARPU, for the quarter ended June stood at Rs 182 and was flat quarter-on-quarter. Growing this through further tariff hikes in the near future will be difficult, given the average subscriber is unwilling to stomach such hikes—especially steep ones like the July increases.

There is an implicit urgency behind telcos’ revenue growth, especially given how much they, especially Jio, have pumped into their networks. According to a note from brokerage firm JM Financial, the capex invested in the 5G rollout plus future investment into networks is estimated to touch Rs 10,60,000 crore by the year ended March 2027. Jio alone spent roughly Rs 80,000 crore ($9.5 billion) in 2022 to acquire spectrum for its 5G rollout. Setting up its network cost it a further few billion dollars.