Ripples Advisory, Is Reliance Jio really India’s most profitable telecom firm?
Appearances can be deceptive, and so can be reported profits
Appearances can be deceptive, and so can reported profits. Reliance Jio Infocomm Ltd was the only Indian telco to report a pre-tax profit in the March quarter. Its pre-tax profit of Rs 784 crore last quarter stands in stark contrast to losses of Rs 2,052 crore and Rs 1,582 crore, respectively, in Idea Cellular Ltd and Bharti Airtel Ltd’s India wireless businesses. How has the company managed to stay immune from the pain inflicted on the telecom sector?
Reliance Jio’s operating costs indeed look far lower than its peers. But the company still capitalizes some expenses, since some of its operations such as home broadband and enterprise services are yet to be commercially launched. Besides, it follows a different depreciation policy which results in lower charges vis-à-vis peers, at least in the initial years of operations.
For this reason, Reliance Jio’s annual report is a much-awaited affair to figure out what the company’s total costs really are. Its FY17 annual report had revealed these hidden expenses in a fair amount of detail. The FY18 annual report not only conceals the break-up of operating expenses that were capitalized, but it even hides the total amount of capitalized expenses. One of the few new pieces of information in the report is that interest costs worth Rs 5,799 crore were capitalized. As such, total interest costs on a quarterly basis are Rs 1,962 crore, far higher than the interest cost of Rs 711 crore listed in the March quarter profit and loss statement.
Analysts at JM Financial Institutional Equities estimate operating expenses worth Rs 7,500 crore were capitalized in, the majority in the June quarter when all expenses were still being capitalized. On an ongoing basis, it is estimated that expenses worth Rs 800 crore are being capitalized each quarter.
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