Jio’s sharp rise in expenses indicate payments to InVIT to climb up in next 2-3 years: Report

Reliance Jio’s expenses, excluding regulatory costs such as license fees and access charges, rose sharply by 25% year-on-year to Rs 266 billion in FY21, driven by a rise in network operating cost, indicates the telco’s payment to Infrastructure Investment Trust (InVIT) is likely to rise over the next two-three years, as per a report by ICICI Securities. This will keep pressure on incremental EBITDA margin.

The network Opex rose owing to a rise in the rental cost; power fuel cost; repair and maintenance, while other expenses (including fiber usage) were up by 178% on-year to Rs 33 billion.

In contrast, employee cost and selling & distribution (S&D) cost dipped 8.6% and 8.2% on-year, respectively. The S&D cost includes commissions paid to Reliance Retail.

Summit Digital (tower InVIT) logged a revenue, including rental and pass-through (energy cost) of Rs 82 billion, up by 10.3%.

“This was lower compared to tower InvIT document disclosure which implied rental cost increase of Rs14bn in FY21 compared to Summit revenue rise of just Rs7.7bn. Summit Digitel net debt dipped by Rs36bn to Rs333bn in FY21, but net debt to EBITDA is still high at 10.9x,” the report said. Summit Digitel contributed 45% of the rental and power and fuel cost of RJio in FY21.

“Though we don’t have much detail [of fibre InVIT], other expenses within network Opex grew 178% YoY to Rs38bn; a majority of it should be due to payment to fibre InvIT,” it added.

At the same time, Jio’s non-Reliance retail revenues jumped by 28.9% year-on-year to Rs 71 billion in the fiscal year.

Jio’s revenue grew 28.7% year-on-year to Rs 699 billion in FY21, while advanced received from Reliance Retail (adjusted for 18% GST) rose 28.6% year-on-year to Rs 628 billion, it said.

Jio’s profit before tax (PBT) rose 111% to Rs 161 billion in FY21; profit & loss effective tax rate was 25.3% even as cash tax expense dipped 88% year-on-year to Rs 1.4 billion.

Depreciation cost rose 52% year-on-year to Rs 66 billion in FY21; it is 5.8% of the tangible gross block, as compared to Bharti’s standalone depreciation cost of ~7.7% of gross block in FY20, the report underlined.

“Thus, we expect inflation in depreciation to sustain for the next few years as cost normalises; amortisation cost rose 63% YoY to Rs49bn; it is 7.3% of intangible gross block. In FY22, amortisation cost would rise from spectrum acquired in Mar’21 for Rs571bn,” it said.

Net debt rose 3% year-on-year to Rs 461 billion but if committed spectrum payment and debt of Rs 421 billion are included then the net debt jumped to Rs 882billion.

“Jio’s Capex was stable at Rs 143 billion (20.4% of revenue) compared to Rs 148 billion Capex in FY20 (27.2% of revenue). The company has said it is near completion of 4G Capex, which has led to a dip in Capex intensity,” it added.

RJio’s cash flow from operations (post interest cost) rose 335% year-on-year to Rs 293 billion in FY21 on account of a rise in EBITDA and dip in interest cost. However, the upfront payment for the spectrum purchased in the Mar’21 auction of Rs 150 billion led to FCFE generation of only Rs 32 billion.