Jio boosts profit by using unique accounting approach?

Gionee with Jio 4GReliance Jio has followed a unique accounting approach to post its first profit within a year of commercial operation of its 4G network in India, said investment research firm Bernstein.

Mukesh Ambani-led telecom operator has strongly refuted the claim.

Bernstein said it was dumbfounded by Reliance Jio’s Rs 504 crore profit in the October-December quarter of 2017 as it was bit too good to believe.

Reliance Jio, the largest 4G operator in India, has questioned the motive of the report, saying the company was never contacted for any clarification. The telecom operator said there is nothing wrong in its accounting practice.

Reliance Industries (RIL), the promoting company of Reliance Jio, is the largest private Indian company in India. Mukesh Ambani, the founder of Reliance Industries, is the richest Indian.

Bernstein said that Jio has reported a profit due to a unique approach to depreciation and amortisation which results in significantly lower expense than seen elsewhere in the telecom industry.

“Telecommunications is a game of scale, and despite the incredible trajectory in subscribers Jio has achieved, we have never seen a new entrant reach sufficient scale in such a short amount of time,” said the Bernstein report dated February 2.

The unique approach led to Jio booking Rs 1192.6 crore depreciation and amortisation charge in the third quarter of fiscal 2018.

If Reliance Jio had followed the accounting methods practiced by rival telecom companies, Jio would have reported loss of Rs 2,410 crore. The loss in Q2 would have been Rs 2,700 crore.

Instead, Reliance Jio reported that its small loss of Rs 270 crore in Q2 improved to a profit of Rs 504 crore in Q3 of 2017-18.

Bernstein says it has compared the cost structure of Reliance Jio, Idea Cellular and Bharti Airtel with those of other global telcos.

In response to an email query by PTI, Jio said its accounting statements are based on the applicable Indian Accounting Standards.

“The accounting treatment has been reviewed and approved by the audit committee of the company and also specifically reviewed by the auditors,” Jio said.

Reliance Jio said that it is depreciating only the wireless assets as they have been put to commercial use, and other assets have not yet been capitalised.

Bernstein report titled ‘Did Reliance Jio turn a profit in only their 6th quarter since launch?’ said: “While we don’t want to take anything away from the amazing achievements Jio has delivered – the company has ‘reset’ what it means to be a disruptor in the telecom sector – we find the result a bit too good to believe”.

Jio’s profit may be due to favourable tower- sharing deals with Reliance Infratel, reduced interconnect fees and accounting methodology for depreciation which “stands out as an anomaly” when compared to peers.

Reliance Jio posted its net profit of Rs 504 crore in Q3, the second quarter of commercial operations, as compared with a loss of Rs 271 crore in the September quarter.

Jio’s revenue was Rs 6,879 crore (+11.9 percent) over the previous quarter.

Jio posted EBITDA of Rs 2,628 crore (+82.1 percent). Jio has 4G subscriber base of 160.1 million as on December 31, 2017.