At a time when global investors are losing their appetite and are wary of writing new cheques to fledgling tech companies, Jio Platforms, a three-and-a-half-year-old tech firm, has roped in one global investor after another. Reliance Industries Limited (RIL)-owned Jio Platforms houses all of the group’s digital and mobility businesses, including India’s biggest telco, Reliance Jio Infocomm (which is also the country’s largest broadband provider), and all other digital firms – Jio Fiber, MyJio, JioTV, JioCinema, JioMart, JioNews, JioSaavn – under one banner.
Since April 2020, Jio Platforms has attracted investments of around Rs 1 trillion from marquee international investors. Through 11 rounds of stake sale so far, Jio Platforms has raised a total of Rs 1,156.93 billion from a mix of strategic and long-term investors including Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala, ADIA, TPG and the Public Investment Fund by parting with just 24.7 per cent stake (cumulatively) of the company.
It all started with Jio’s mega deal with Facebook in late April, when the social networking giant agreed to acquire around 10 per cent stake in the former for Rs 435.74 billion. Since then, key players from the private equity (PE) space have been queuing up to pick up small stakes, for big sums, in Jio Platforms. Moreover, after Facebook’s deal, all other stake acquisitions have taken place at a 12.5 per cent premium. While Facebook valued the company at Rs 4.62 trillion enterprise value (pre-money), all other firms have put an enterprise value of Rs 5.15 trillion for Jio Platforms. This value is comparable to that of global tech giants such as Alphabet, Tencent and Alibaba, which have already established large digital ecosystems.
These deals have several benefits for both Jio and RIL. In the near term, they will help deleverage the group’s balance sheet, as debt has ballooned in recent times and finance costs have been eating into the group’s profit margins. RIL has reportedly pumped in close to Rs 4 trillion into Jio alone since 2010 to develop a 4G ecosystem and cement its market position. While doling out year-long freebies to woo Indian telecom users definitely helped kill competition, it proved to be a costly affair for the company. In view of this, Jio Platforms’ ongoing efforts to raise funds are much needed to pare the group’s debt and accomplish its goal of becoming a zero-debt company by March 2021. It is believed that only 10 per cent of the amount raised by these deals will be retained in Jio Platforms while the remaining will be used to deleverage RIL’s balance sheet.
Further, by leveraging the global experience of leading technology companies, Jio aims to transform into a formidable tech platform. The company wants to build on its user base of close to 400 million acquired in the past three years and drive the group’s growth into domains like e-commerce, payments and online entertainment. For instance, the tie-up with Facebook will help accelerate the process of digitalising RIL’s retail businesses. Through Facebook’s WhatsApp platform, Jio can increase the traffic on its JioMart offering. Users in select cities are already accessing JioMart through their WhatsApp accounts to place orders for grocery. Soon the WhatsApp payment services will also be provided for JioMart products.
All the deals involve fresh equity infusion into Jio Platforms and there has been no dilution of the stake of earlier investors. Besides repaying debt/liabilities, the surplus cash inflows can be used to build a war chest to accelerate Jio’s fibre-to-the-home service roll-out, strengthen its enterprise offerings and help its bid for 5G spectrum.
These deals will also help in firming up RIL’s plans for an overseas listing of Jio Platforms. As per analysts, an overseas listing will be a step in the right direction as it will give the PE investors a better exit. As per industry reports, RIL may already be preparing for an overseas IPO, which could happen in the next year or so. However, there is no information available on the listing venue, size, etc.
The money magnet
In the past couple of years, India’s growing digital footprint has attracted significant investor interest. Indians have exhibited a stunning appetite for data services. As per Nokia, the data traffic in India grew 44 times during 2015-19, at one of the highest growth rates in the world. The country’s digital ecosystem is evolving rapidly owing to factors such as the second largest number of internet users in the world (over 600 million), a fast growing e-commerce ecosystem (30 per cent annual growth), and a deep payments network (about 1.5 billion transactions per month).
The outbreak of Covid-19 has further increased India’s digital demand as more people are increasingly turning to online platforms for work, studies, shopping, entertainment and payments. There has been a massive uptick in digital payments, online education and e-commerce activity. This has brought telcos and their treasure trove of user data into the limelight. This data can prove to be a gold mine for technology companies in the post-Covid era.
Besides, the rising anti-China sentiment across the world could be a reason for investors to look for opportunities in the next big digital destination – India. Jio, with its 400 million users and presence across key sectors such as commerce, payments, finance, entertainment and gaming, education, and healthcare seems like a promising bet.
Over the past three years, Jio has made a conscious effort to position itself as a digital platform, and not just another telco. It has used its telecom network to make inroads into the country’s digital ecosystem. In fact, it was Jio’s digital offerings that kept users glued to its network even after the initial euphoria of freebies subsided. Jio offers a suite of apps including JioTV, which streams more than 500 channels; JioCinema, an on-demand movie streaming service; and JioSaavn, an ad-supported music streaming service. All of these services are complimentary with Jio subscriptions. Some of these services have already gathered millions of users. According to a report by Bernstein, Reliance Jio’s mobile subscriber base is expected to cross the 500 million mark in 2022-23, up from 388 million at present. Further, the subscriber base is expected to touch 569 million in 2024-25 and 609 million in 2027-28.
Investors are betting big on Jio’s access to India’s huge consumer market and its potential to shake up traditional industries, such as retail, education and payments, with its technology. The recent Facebook connection has further lent weight to Jio’s ambitions, sending strong signals and instilling confidence in the global investor community.
A report by Bernstein states that it expects strong strategic cooperation between Facebook and other entities of the Reliance Group. “Jio-Facebook’s platform approach can unlock India’s digital ecosystem and cater to a large market that may potentially be $2 million by 2025 across commerce payments and content,” Bernstein stated in its report. The two companies are already believed to be working on developing a range of applications, including a “super app” that will combine several functions into one platform.
Besides its aggressive digital ambitions, Jio comes with several other positives such as a proven record of execution, a nearly debt-free capital structure and most importantly, being on the right side of regulations in India.
The jury is still out
The feat that RIL and Jio have pulled off in the past nine weeks has been nothing short of exemplary. The deals affirm the global investor community’s confidence in Jio Platforms’ ability to tap into India’s digital potential. Jio would now have to deliver on this confidence through effective monetisation of its tech platform. While the company has emerged as a formidable player in the Indian telco space, driving an entire digital ecosystem may not be as easy. There still exists worthy competition in several verticals that Jio Platforms is targeting to enter. This is just the beginning of an arduous journey for Jio and it will be interesting to see how the future unfolds both for Jio as well as India’s digital ecosystem.
By Akanksha Mahajan Marwah
(As we go to press, Jio has completed a total of 11 rounds of stake sale and has raised a total of Rs 1,156.93 billion.)