Reliance Jio has so far deployed about Rs. 52,400 crore as of March 31

April 21, 2015

Reliance Industries (RIL) has so far committed Rs. 88,000 crore (USD14 billion) of capital to its telecom business, as per sources. This does not include the Rs. 10,077.53 crore the telecom subsidiary, Reliance Jio Infocomm, will spend for its 800-MHz and 1,800- MHz spectrum won in the recently held auctions.

An Kotak Institutional Equities report dated April 20, notes that Reliance Jio has so far deployed about Rs. 52,400 crore of capital as of March 31, against Rs. 37,800 crore as of March 31, 2014. Reliance Jio holds broadband wireless access spectrum in all the 22 telecom circles and has made significant progress in rolling out its 4G business, including physical network infrastructure, systems and processes, sales and distribution network.

A June 2014 report by Kotak noted that the Rs. 70,000 crore of capex that was committed in 2013-14 could rise further depending on the operating losses before the business becomes self-sustaining. “We note that RIL’s Rs 70,000-crore capex is comparable to the cumulative investment of Bharti Airtel and Idea in their domestic businesses. Even established telecom operators are struggling to earn a decent RoCE on their depreciated assets,” the report stated.

The biggest concern with regards to the Reliance Jio’s telecom business is the long gestation period for profitability, the increased risks given the scale of planned investments in new technology (4G-LTE) and the competitive nature of the telecom industry, a recent Morgan Stanley report noted. On the other hand, the report added that with the launch the Reliance Jio 4G services around 9-12 months away, the regulatory environment has improved, the spectrum auction bidding was rational, and the 4G ecosystem is improving.

Reliance Jio will initially cover about 5,000 towns and cities, accounting for over 90 percent of urban India, as well as over 2,15,000 villages, and the target is to expand this to over 6,00,000 villages, RIL chairman Mukesh Ambani told shareholders in June 2014.