For a year, there was little information available on how Jio was doing financially. In the latest quarterly result, however, RIL decided to post Jio results separately under the banner “Digital Services.” These results gave us a glimpse on how Jio is performing, but even in this case, RIL has in a way clubbed revenues from previous quarters with this Quarter.

Excess revenue in the current quarter?

No revenue till 30 June 2017:

If we are to analyze Jio’s finances in a chronological order, then one must note that Jio has not booked any revenue between 5 September 2016 and 30 June 2017. This is approximately 9 months and 25 days. For this period, Jio has technically given its services for free. The company in its own financial results has declared that commercial operation for Jio has begun only from 1 July 2017. It is only from this date that any form of revenue has been accounted for, even if certain payments were made by subscribers in advance.

Advance payments:

It is worth noting that even though Jio has started accounting revenue only from 1 July 2017, a large chunk of its subscriber base had made recharges earlier. Jio had initially announced the Prime membership program and unveiled its very first tariff plan on February 21, whereby most plans had a validity of just 30 days.

Then on 31 March 2017, Jio announced that 72 million subscribers had signed up for Prime. Another announcement that Jio made on 31 March was that everyone would be getting a three-month extension of free services. This meant that no one would be technically charged till 30 June and it is only from 1st July onwards that the very first recharge made would become effective.

Deferring revenue:

Since Jio decided that its commercial launch took place only on 1 July 2017 and decided to levy no charges up till 30 June 2017, this meant that the recharges done between 21 February and 30 June 2017 were accounted for from 1 July onwards.

Interestingly, this meant Jio had deferred the revenue of two quarters, i.e., the quarter ending March and the quarter ending June, to the quarter ending September. Since Jio started recharges from 21 February itself and did not account recharges done till 30 June 2017, this effectively meant that Jio did not account for revenue that occurred for the quarters ending March and June and instead chose to defer those revenues to the quarter ending September.

Thereby the revenues that you see Jio posting for the quarter ending September 2017 are more like annual revenues Jio has incurred since its inception in September last year.

Revenue: guessing the actual picture

To, date there have been four commercial quarters ever since Jio’s launch back in September 2016:

1. Quarter ending December 2016
2. Quarter ending March 2017
3. Quarter ending June 2017
4. Quarter ending September 2017

1. Quarter ending December 2016:

For this quarter, Jio’s revenues for all practical purposes should be zero since Jio did not launch any plans till 31 December 2016, barring for packs that helped you regain speed once you exceeded the generous 4 GB/day quota. The number of people who recharged with the speed booster packs is unknown but it is generally known that very few (some say almost negligible people) recharged with the speed booster packs.

For all practical purposes, the revenue Jio incurred for the quarter ending December 2016 can be considered well below Rs 500 crores.

2. Quarter ending March 2017

This is the first quarter where Jio managed to gain revenue if not book it was the quarter ending March 2017 because of the announcement made on 21 February where Jio launched the Prime subscription program and launched its first set of plans.

On 31 March, i.e., the day when the quarter ending March ends, it was announced that 72 million people had signed up for Jio’s Prime membership program. So we now have an estimated subscriber base that paid for Jio during the quarter ending March 2017. However, we lack data on how much each user paid on an average. If we had data on ARPU for the quarter ending March 2017, then it would have been possible to calculate accurate revenues that Jio earned in the March quarter.

We can always hazard a guess at the ARPU, that said. It is generally agreed that the vast majority of people recharged with the Rs 303 Summer Surprise Plan during the month of March. In fact, Jio itself said that the lower end Rs 149 Plan had not got much traction and whatever traction it did receive, its effect on ARPU would have been negated by the higher priced Rs 509 plan. The average of the Rs 149 plan and Rs 509 plan is Rs 329. Plans costing higher than Rs 509 had very few takers and would not do much to skew the ARPU. Therefore one could assume that Jio’s ARPU was somewhere around Rs 320 for plans alone.

One also needs to add Rs 25 to this ARPU in order to account for Jio’s Prime membership, which will run for one year and is accounted for in ARPU on a pro-rata basis meaning Rs 25, for one quarter, which over four quarters amounts to Rs 100. This gives us a rough quarterly ARPU of Rs 350 for the March quarter. Multiplying this (we stress, it is a rough figure) ARPU of the March quarter, i.e., Rs 350 with the prime members added in the quarter, i.e., 72 million, we get estimated revenue of Rs 2,520 crores

Estimated revenue* for quarter ending March 2017 – Rs 2500 crores

*This assumes that whoever recharged with Prime, recharged with a data pack as well.

3. Revenue for the Quarter ending June:

It is known that from first 1 April onwards, Jio stopped selling SIMs for free and instead required people to make a recharge of Rs 309/ Rs 509 along with the Rs 99 Prime recharge while availing a new subscription. This means that Jio’s subscriber additions in the months of the quarter ending June multiplied by the ARPU would give a rough idea of the revenue pulled in by the company in the June quarter.

For the June quarter, the company added nearly 14.68 million subscribers and on a rough estimate, there were 10 million subscribers recharging for Prime and plans from the next quarter. The ARPU would be more or less the same as the March quarter except for a premium of around Rs 20 because low-end plans were actively discouraged while signing up users. This gives us a quarterly ARPU of around Rs 370 for the quarter ending June, which when multiplied with a subscriber addition of 14.68 million and 10 million previous quarter subscribers, gives us revenues around Rs 1776.96 crores.

Estimated revenue for quarter ending June 2017 – Rs 1777 crores

4. Revenue for quarter ending September:

This means that the revenue for the quarter ending September would be roughly in the vicinity of Rs 7,213 crores – (Rs 100 crores (December) + Rs 2500 crores (March) + Rs 1777 crores (June)) i.e., around Rs 2836 crores.

Estimated revenue for quarter ending September – Rs 2836 crores

Cost analysis

So far I have explained Jio’s revenues to the best of my ability and now it is time to analyse the firm’s expenses as well –

Access Charges:

Access Charges are the biggest expense on Jio’s balance sheet as of now and cost as much as Rs 2139 crores. A good part of this access charge comes from IUC that Jio pays to other telcos like Airtel, Vodafone and Idea. With IUC being reduced by as much as 57 percent, Jio should save a fortune on interconnect costs which also happen to be the biggest cost component on its balance sheet.

Network operating expenses:

Network operating expenses stand at Rs 1371 crores and are the second biggest component after access charges. As Jio adds more towers to its network and improves capacities in metros via small cells, expect network operating expenses to keep increasing in the foreseeable future.

Depreciation and Amortisation expenses:

Depreciation and Amortisation expenses are bound to increase in the future because Jio has a lot of capital parked under “Work in Progress” which means they are not accounted for while calculating Depreciation and Amortisation. D&A expenses stand at Rs 1183 crores.

Other expenses:

Spectrum payouts are bound to fall as the Government has extended timeline for payment of spectrum-related dues. The trajectory of other expenses like Employee Benefits, Distribution, etc., remains unknown.

Is Jio Profitable yet?

So is Jio profitable or not? The answer seems no, as the revenue for the quarter was boosted by deferred revenue from previous quarters. However, with access charges bound to reduce significantly from October 1 and Jio being on the verge of starting booking revenues of JioPhone users, maybe profitability is not that far away after all.