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Reliance Jio needs significant tariff hikes, customer acquisition strong: Edelweiss Securities

Reliance Jio in the first quarter FY22 beat street expectations and reported a standalone net profit of Rs 3,501 crore versus a CNBC-TV18 analyst's poll of Rs 3,250 crore in the first quarter of the financial year 2022. The standalone revenue has come in at Rs 17,994 crore versus the analysts' expectations of Rs 17,600 crore.
Talking about what to expect from earnings going forward, Jal Irani, Executive Director-Institutional Equities, Edelweiss Securities said, “It is the change in the mix rather than an absolute number that is going to drive things for the company. The numbers for gas business and O2C are going to be hiked versus Reliance Jio business as an example there needs to be significant tariff hikes for those expectations to materialize and that is just the telecom business, the digital business is the future growth business. I think there is going to be a change in mix in earnings more than consensus.”
When asked if the telecom industry would hike tariffs, he said, “We are building in a fair bit of tariff hike. The strategy Reliance has been adopting so far is to add to the customer base aggressively rather than have tariff hikes. Even in this quarter, they have added 15 million customers and to the extent of the spectrum build-out among other things, they have the potential bandwidth adding more than two hundred million customers.”
"I think it is a significant balance they are looking to build in and as long as they are getting customer increases at a fairly significant pace, the tariff hikes would be calibrated. That in my opinion is the primary strategy,“ said Irani.
The average revenue per user or ARPU, a key metric to check the health of a telecom player has remained at a steady Rs 138.40 and is slightly above expectations. Last quarter the reading was Rs 138.20.
Disclosure: RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.
For the full interview, watch the accompanying video