In the past one decade we had seen new technology had disrupted the old fashioned business practice. Facebook, Google and Apple are the few examples who had changed the business dynamics and how the business is done.

Reliance Industries start-up Reliance Jio is like the last nail in the coffin of ‘disruption’ in telecom industry. A much awaited change that Indians needed to compete with the world.

Let us first talk about unlimited calls and cheap data that Reliance Jio is offering. Many industry analysts and senior executives think this strategy cannot be sustained to generate long term profits. But Reliance Jio is not the first telecom company in the world who came out with such cheap plans. In Australia, two years back Optus (SingTel telecom subsidiary in Australia) slashed 95% price on data charges from AUD$200/gig to AUD $10. And all its mobile plans were changed to unlimited calls and rest of its peers followed them soon.

Many will argue on the demographics of both the nations. There are 35 million active mobile phones in Australia, and 200 million active smart phone users in India. Yes, this is my point. If Optus can be profitable with such a small demographics then why not India? Where the potential users in next 5 years will be close to 800 million smart phone users? A question to tweak on Reliance Jio profitability.

Reliance Jio is the world’s costliest start-up and is costing Reliance Industries Rs 150,000 crore (USD$ 21 billion). This is a big amount invested in the telecom industry history of India. If we look at their competitor Bharti Airtel, its market cap is around Rs 125,000 crore today. They have invested Rs 42,250 crore in the business and have debt of Rs 95,500 crore. The total investment figure in business comes close to Reliance Jio, and you will be able to judge the quality service of both soon.

Bharti Airtel will be having grudges against Reliance Jio. This similar opportunity was available to them five years back and they did not capitalised on it. And on the name of growth entered into African territory.

Reliance Jio’s Balance sheet is looking strong compare to Bharti Airtel and Idea cellular. With long term debt not more than USD$ 5 billion (25%) of total USD $21 billion investment.

Reliance Jio could change attitude of investors like us towards them provided they turn this business into profits soon. The only concern to us is the cash flow. Telecom companies are capital extensive businesses and need lot of cash and working capital to run them smoothly. Reliance Industries cash flow is not that strong that it can support Jio.

Well, it is too early to say anything. The idea and strategy of Reliance Jio is great and if executed nicely then will reap good profits to its shareholders.

What is your opinion on this new distraction? Share with us.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise you to take professional advice before going ahead with our views.