Jio vs Airtel: What explains Jio's higher valuation while Airtel makes more revenue per user

Reliance Industries share price is buzzing after the Jio Platforms IPO announcement at the AGM on Friday. The IPO comprises a fresh issue of 27 crore shares and is expected to raise around ₹32,000 to ₹37,000 crore, said media reports. The Jio IPO comes at a time when the company has already clinched the top position in the telecom industry with 524 million subscribers. According to the media reports and analyst estimates, the implied valuation for Jio Platforms is expected to be at ₹12-13 lakh crore. In comparison with Bharti Airtel’s ₹11.2 lakh crore market capitalisation, Jio’s IPO comes with a very little premium. Will this premium sustain, and what growth does Jio offer after listing at a premium valuation?

Jio vs Airtel: The valuation divergence

Bharti Airtel is India’s second-largest telecom service provider with over 480 million domestic subscribers. Whereas Jio Platforms holds the top position with 524 million subscribers, making it hold a little premium over its rival Bharti Airtel. The valuation divergence of Jio over Airtel is justified by Jio’s ability to use its wide subscriber base to move ahead of its rival Bharti Airtel. However, Bharti Airtel continues to offer higher value with its Africa business, stakes in Indus Towers and other business segments such as data centre, cloud communication, entertainment and payment services.

What drives the divergence?

The divergence in valuation could be sustained with Jio’s competitive advantage of a higher subscriber base and diversified offerings on the Jio Platform. Additionally, Jio aims to deliver 80% of the incremental EBITDA for the consolidated Reliance Industries. Additionally, fare hikes by Jio by providing value-added services to its subscribers will take Jio at par with Airtel’s ARPU of ₹257 per share. In contrast to these arguments, analysts also estimate that the premium valuation could fade as Airtel holds strong balance sheets with strong free cash flow of over ₹48,529 crore at the standalone levels, almost double that of Jio’s free cash flow of ~₹24,000 crore. With no major capex planned, Airtel sits comfortably with a high cash base in its bank, ready for expansion in inorganic segments. Whereas Jio’s current fundraising will be utilised in repaying the majority of its outstanding debt.

What factors will help valuation sustain?

Jio Platform's IPO comes at a time when the company has already clinched the top position with the highest subscriber base in the country. Its revenue has grown at 28.8% CAGR over the last eight years and profitability at ~60% CAGR. The company aims to provide value-added services and aims to drive its revenue growth in line with its peers. Additionally, the company also aims to transform itself from a telecom giant to a full-scale deep-tech entity. In its latest AGM, Reliance Industries announced multiple AI initiatives, which will place Jio on a world platform as a native AI and deep-tech company. The company intends to make Jamnagar a sovereign AI hub, offering AI as a service to its customers and subscribers. Introduce Satellite broadband services similar to Starlink, expanding the high-margin enterprise and B2B solution segment.

In conclusion

In a battle of first vs second, the Airtel and Jio rivalry will continue to get fierce after Jio’s listing on the bourses. Airtel, which is focused on the premiumization of its services, continues to draw higher revenue per user. Whereas Jio intends to provide multiple services at scale by expanding its market share.