Investment research firm Bernstein has questioned Reliance Jio reporting its first ever profit within a year of commercial operation, saying the profit was the result of following a "unique" accounting approach, a claim the Mukesh Ambani-led firm has strongly refuted.
While Bernstein said it was "somewhat dumbfounded" by the Rs 504 crore profit reported in October-December quarter as it was "bit too good to believe", Jio questioned the motive of the report, saying it was never contacted for any clarification.
The Bernstein report claimed that Jio's reported profit is due to a "unique approach" to depreciation and amortisation which results in significantly lower expense than seen elsewhere in the industry.
"However, despite the success in attracting users, we have been somewhat dumbfounded by their announcement they had reached profitable operations," it said.
"As we have said many times over, 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, which using the method used by other telecom companies would have quadrupled and the company would have reported loss of Rs 2,410 crore. The loss in Q2 would have been Rs 2,700 crore, the report claimed.
Instead, the company reported that their small loss in Q2 (Rs 270 crore) had improved to a profit of Rs 504 crore in Q3 of 2017-18, said the Bernstein report which claimed to have done a deep dive comparing the cost structure of Jio, Idea and Bharti with those of other global telcos.
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