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Read more about Here\'s why Mukesh Ambani\'s first Jio profit is \'too good to believe\' on Business Standard. Morgan Stanley estimates Jio will turn cash-flow positive in the 12 months through March 2020
'too good to believe'
Reliance JioInfocomm Ltd.’s first-ever net income is “a bit too good to believe”
for Sanford C. Bernstein analysts, who examined how the phone carrier accounts
for some costs.
Jio’s “unique approach” results in a slower pace of recognising depreciation and
amortisation, which led to a Rs 12 billion ($187 million) charge in the December
quarter, according to a February 2 Bernstein report. Using a rate similar to local
rivals would have quadrupled that number and turned Jio’s reported profit into a
loss of Rs 24.1 billion, analysts led by Hong Kong-based Chris Lane estimated.
The carrier, controlled by India’s richest man and a unit of Reliance Industries Ltd.,
posted a net income of Rs 5.04 billion last quarter, about 16 months after its
debut sparked an industry price war that crashed revenues. The result was
boosted by Jio’s policy, linking depreciation charges to “its own assessment” of
usage and economic benefit, while other Indian carriers amortize telecom assets
at a fixed rate over time, Morgan Stanley said in a Jan. 21 report.
An email seeking comment from Jio’s spokesman went unanswered.
“It’s part of accounts engineering.
The assets will depreciate over time whether you use them or not, whether you
use them partially or fully,” said Anil Singhvi, founder of Ican Investment Advisors
Pvt Ltd. This approach is “just a way of saying I’m profitable sooner,” he said by
phone, adding that the focus should instead be on cash flows.
Billionaire Mukesh Ambani’s telecom unit launched with free services in 2016 and
went paid 10 months ago. Morgan Stanley estimates Jio will turn cash-flow
positive in the 12 months through March 2020.
Bernstein analysts pinned Jio’s profit down to three factors: lower network costs
possibly due to favorable tower-sharing deals, reduced interconnect fees and its
method of accounting for depreciation which “stands out as an anomaly” when
compared to global peers.
Jio, which had 152 million subscribers at the end of November, has elbowed aside
rivals to become the nation’s No. 4 wireless carrier. Bharti Airtel Ltd. is in the top
spot with soon-to-be-merged Vodafone India Ltd. and Idea Cellular Ltd. at No. 2
and No. 3 respectively.
Article By - Business Standard