Transfin.
HomeNewsGuidesReadsPodcastsVideosTech
  1. News
  2. Explained

Oil Prices Expected to Hit $100, Jio Overtakes Airtel to Become India's Second-Biggest Telecom Company, Microsoft Hits Trillion-Dollar Value Mark, US GDP Rises 3.2% in Q1 et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Apr 28, 2019 11:53 AM 6 min read
Editorial

Oil prices spike more than 3% on reports that US will end waivers for Iran sanctions. Expected to hit $100, poses biggest risk to Indian equities. Jio overtakes Airtel to become India's second-biggest telecom company, behind Vodafone-Idea. Reports fall in average revenue per user. Microsoft reports Q3 earnings, beating expectations with $30.6bn in revenue. Hits the trillion-dollar value mark. US GDP rises 3.2% in Q1, strongest rate of first-quarter growth in four years.

 

Moving on to the top Business stories of the week.

 

 ENERGY 

Oil prices spike more than 3% on reports that US will end waivers for Iran sanctions. Expected to hit $100, poses biggest risk to Indian equities.


 
Your Request Has Been Declined: Brent crude futures surged more than 3% to over $74 per barrel on Monday morning during Asia hours, while US crude futures rose around 2.33% to $65.49 per barrel, on back of reports that the US will no longer grant sanctions waivers to any country that is currently importing Iranian oil.
 

What You Need to Know: The US re-imposed sanctions in November on exports of Iranian oil after US President Donald Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers. Washington, however, granted waivers to Iran’s eight main buyers - China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece - that allowed them limited purchases for six months.
 

A Head-on Collision: An end to the exemptions is likely to hit the Asian buyers the hardest. Iran’s biggest oil customers are China and India, who have both been pushing for extensions to sanction waivers.
 

The news comes in the backdrop of an already tightening global oil supply, with OPEC leading supply cuts since the beginning of this year.
 

A Whooping $100 Per Barrel: Oil prices may hit $100 per barrel if the US ends all Iran sanction waivers, as per Christopher Wood, MD and Equity Strategist at CLSA.
 

Why Should India Be Concerned: Rising oil prices are the biggest risk to the Indian equity story from a five-year horizon. With India currently importing more than 10% of its crude oil from Iran, the government faces the immediate challenge of having to find alternative suppliers to meet its massive energy needs.

 

 ECONOMY 


RBI may consider revising its Feb 12 circular on bad loans. RBI has $43bn in excess capital, as per BofAML. India may extend deadline for imposing retaliatory tariff on 29 US items. RBI to issue new Rs 20 denomination notes. 

 

Bending Rules: RBI is likely to tweak the much-debated Feb 12 circular to replace the one-day default norm with a grace period of 30 days to identify the early stress of borrowers. 
 

Previously: Under the February 12 circular, even a one-day default on the principal or interest payment, or any other amount, wholly or partly, would lead to banks classifying the account as a special mention account. 
 

Another substantial change will be in the treatment accorded to term loans vis-à-vis revolving facilities such as cash credit.
 

Zoom Out: The SC had struck down the RBI’s February 12 circular last month as ultra vires.
 

The order states that RBI can direct banking institutions to move under the IBC only:

(i) if there is a central government authorisation to do so; and
(ii) that it should be in respect of specific default of specific debtor.

Within this background, one can only hope that authorities concerned will restore public confidence by assigning supremacy to public interest when it comes to regulating banking companies.
 

A deep dive into the new order here.

Treasure Trove: A panel led by ex-RBI Governor Bimal Jalan is likely to identify excess reserves of up to INR3L cr (1.5% of India’s GDP), according to Bank of America Merrill Lynch.
 

The news comes as the Committee prepares to submit its report on the matter of excess reserves with the RBI in the coming weeks.

 

Delayed: India is likely to extend the deadline for imposing retaliatory customs duties on 29 US products, including almond, walnut and pulses, by another 14 days. 

Backstory: This development becomes relevant as US recently announced that it may withdraw export incentives provided by them to India under the Generalised System of Preferences (GSP) programme. The withdrawal is expected to come into force from May 2.

India's exports to the US in 2017-18 stood at $47.9bn, while the total imports were worth $26.7bn. 

Minting Cash: The RBI has announced that it will shortly issue Rs 20 denomination notes, in the Mahatma Gandhi (New) series, bearing the signature of the Central Bank's governor Shaktikanta Das.

The new note will be greenish-yellow in colour with a motif of Ellora Caves on the reverse. 

 

 JIO 

Jio overtakes Airtel to become India's second-biggest telecom company, behind Vodafone-Idea. Reports fall in average revenue per user. May be pressurized to raise prices this fiscal. Jio GigaFiber commercial roll-out to begin soon as beta testing concludes.

 

Wining Hearts: As per data released recently, Jio has overtaken Airtel to become India's second-biggest telecom company, capturing 12% of active mobile users in the country, with over 30.6 crore subscribers. Vodafone-Idea still holds the top position with 38.7 crore users, while Airtel has slipped to the third place with 28.4 crore customers. 

 

Read more on Jio’s swashbuckling growth here.

 

Unlike Any Other: Reliance Jio captured 12% of active mobile users in the country within a year of launching its commercial operations — the fastest market share gain among other telecom entrants globally, according to a report by international brokerage firm Sanford C Bernstein & Co. However, a closer analysis of Jio’s finances suggests that the profits are largely a function of its unique depreciation policy and its low interest cost, rather than high greater revenues or operating profit.
 

A deep dive into Jio's accounting method which has boosted its operating margins here.
 

Progressive Degenration: Jio’s average revenue per user (Arpu) has been falling progressively. From INR154 in the December 2017 quarter, its Arpu fell 15.6% to INR130 in the same quarter in 2018. It further declined to INR126.2 in the March 2019 quarter.
 

A waning Arpu suggests that every user added contributes less to the total revenue. This in turn, may pressurise Jio to raise tariffs.
 

Meanwhile...: Interestingly, as Jio sees massive user additions and falling Arpu, Bharti Airtel and Vodafone Idea have started weaning low-paying customers by putting in place minimum recharge plans starting at INR35.
 

Consequently, Airtel’s Arpu improved to INR104 in the December 2018 quarter from INR100 in the preceding quarter - the first such increase after nine straight quarters of decline.  
 

Under Pressure: Reliance Jio may be pressurized to raise prices in this financial year on back of increased spending. Jio stares at a spend of about INR9,000cr a year on its long-term capacity leasing deals with special purpose vehicles (SPVs) created to hold its demerged fibre and towers assets.
 

The news comes soon after Jio reported sluggish Average Revenue Per User. 
 

Why is Reliance Losing Out?: Reliance Jio's EBITDA margin has hovered at c. 39% for six quarters now, despite revenue rising 60% over the same period. Why is operating leverage missing from Reliance Jio financials? Read more here.

 

Also This: Reliance Industries has announced that the beta testing of the Jio GigaFiber is now complete and it will be rolled out for commercial use in the coming days in more than 1,600 cities.

 

 

 TECH 

Microsoft reports Q3 earnings, beating expectations with $30.6bn in revenue. Hits the trillion-dollar value mark. Tesla reports net loss of $702m in Q1. Amazon reports robust quarterly earnings, beats expectations.

 

Microsoft Q3 Earnings: Microsoft posted its Q3 earnings, beating expectation with revenues of $30.6bn, up 14% Y-o-Y. Net income stood at $8.8bn. 
 

The rise in revenue is credited to growth in "More Personal Computing," which includes Windows, Xbox/gaming, search advertising and Surface.

 

Microsoft: Microsoft on Thursday became the third publicly traded US company to reach the $1tr market cap benchmark, on back of robust quarterly earnings driven by growth in cloud computing and business services.

From the Archives: In August 2018, Apple first took the spotlight for achieving this feat, followed by Amazon in September.

 

Tesla Q1: Tesla reported a wider-than-expected loss and less revenue in its Q1 earnings. The car-makers reported $4.5bn in revenue and a loss of $4.10 per share.

 

On an unadjusted basis, Tesla lost $702.1m, or $4.10 a share during the quarter ended March 31, vs a loss of $709.6m, or $4.19 a share during the same period last year.
 

Amazon: Amazon reported the best-ever quarterly profit at $3.56bn, on back of its cloud-computing unit and burgeoning advertising business, helping to offset sluggish growth from the core online retail business.

 

 US  

US GDP rises 3.2% in Q1, strongest rate of first-quarter growth in four years.

Bouncing Back?: The US economy grew at 3.2% rate in Q1 - the strongest rate of first-quarter growth in four years. 

The expansion was driven by rising exports, falling imports and higher inventory investment which helped offset weaker gains in consumer spending and business investment.

The robust numbers are likely to be suggestive of the US economy recovering from a gloomy start to the year, due to challenges which included a partial US government shutdown, market turmoil in late 2018 and slowing global growth. 
 

All's Not Well: Yet that’s not to say it’s an entirely rosy picture. Read this article to know why. 

 

(Don't want to miss out on these End Of Week Wrap Ups? Subscribe Now to our No Nonsense Email Digest and get the day's Top 6 Business stories straight to your mailbox.)