Jio Platforms’ trump card hides in plain sight even as AI and patents may be hazy
Can Jio Platforms’ initial public offering (IPO) break the jinx of largely disappointing mega issues such as Hyundai Motor India and the National Stock Exchange of India? Well, for the sake of Reliance Retail’s expected IPO over the next couple of years, it is critical that Jio’s IPO is successful.
Let's first look at the pricing. Jio holds promise when viewed purely as a telecom company. At the upper end of its price band of ₹1,065-1,119 apiece, the size of ₹30,213 crore will make it the biggest public issue in India’s capital market history.
Jio’s annualized FY27 EPS (earnings per share) could be about ₹35, based on the June quarter (Q1FY27) results, after factoring in a 3% rise in the number of equity shares post-issue, which means a price-to-earnings (P/E) multiple of 32 at ₹1,119. On FY28 estimates, the P/E could be lower if Jio decides to improve average revenue per user (Arpu) instead of focusing on garnering more customers.
Over the past four years to FY26, Jio added 92 million subscribers for a total of 497 million, almost twice the number added by Bharti Airtel even as the latter’s Arpu has grown faster. Jio has used pricing to capture most of the incremental users.
However, mobile penetration in India has saturated, with QoQ subscriber growth for Jio and Airtel moderating to about 1% in Q1. So, Jio can think of increasing prices. Jio’s mobile Arpu in FY26 was ₹203 versus Airtel’s ₹254. Even if Jio decides to tweak some plans, especially the entry-level unlimited data plan, to boost Arpu by about 10%, it will still stay cheaper than Airtel for users.
Mobile revenue
So, a 10% growth in quarterly mobile revenue from ₹31,000 crore in Q1 means about ₹12,000 incremental revenue annually. Applying an average tax rate of 25.5%, profit after tax could grow by almost ₹9,000 crore a year.
So, the P/E multiple could drop to almost 25 in FY28 if there is just a 10% increase in Jio’s mobile revenue led by higher mobile Arpu. Thus, the valuation multiple becomes attractive for a telecom company, which is typically seen as a utility stock.
Also, Jio faces limited competition, with Airtel the only other significant rival. Both have almost 70% of India’s total mobile users.
Relative valuation also looks reasonable. Bharti Airtel reports Ebit (earnings before interest and tax) for its Indian telecom business. Its market capitalization-to-Ebit multiple (net of its stake in its Africa telecom business and Indus Towers after applying 20% holding company discount) based on Q1 annualized financials is about 20, almost the same as that of Jio.
So, the risk for investors from a valuation perspective is low.
Jio executives have positioned it as a technology company with 7,220 patent applications across various generations of mobile networks and AI-driven automation tools. The impact of this edge on monetization is not immediately clear.
Also, it remains to be seen how satellite-based internet technology evolves and impacts terrestrial communication based on optic fiber cables and cell towers.
In October, US telecom stocks saw a steep sell-off. Reportedly, Starlink may be able to avoid the use of conventional cell towers and still offer reliable indoor coverage. Hence, competition for mobile companies in the US could increase.
In India, however, such technology-led disruption is unlikely in the near future, so telecom sector investors can breathe easy.