Where Jio Platforms Derives Its Value From
Reliance Industries Ltd.’s fund-raising blitz has revealed two things: its telecom assets now contribute half its market capitalisation, and most of that is derived from wireless, broadband and enterprise business of Reliance Jio Infocomm Ltd.
In the last 20 days, India’s biggest company controlled by Asia’s richest man got investment commitments worth Rs 60,597 crore for 13.46 percent stake in Jio Platforms. These came from Facebook Inc, and private equity firms Silver Lake and Vista Equity Partners.
What Is Jio Platforms?
Last year, Reliance said it plans to create a digital holding company for the telecom business, apps and a few of related acquisitions. The unit would largely be debt free with only Rs 25,000 crore of spectrum-related borrowings.
The restructuring was aimed at creating a debt-free digital ecosystem comparable with global platforms such as Alphabet Inc., Tencent Holdings Ltd. and Alibaba Group Holding Ltd., among others.
What Contributes Value To Jio Platforms?
Reliance disclosed that the Jio Platforms has an enterprise value of Rs 5.16 lakh crore. According to BloombergQuint calculations, nearly 98 percent of that comes from the telecom business.
That’s because none of the other investments of the company are earnings accretive. And JioMart, for which Reliance tied up with Facebook, is part of the retail business and not a digital asset. Earnings from the online retail venture will be accounted under Reliance Retail, not Jio Platforms.
It is very difficult to assign a value to Jio Platforms today because of the digital investments which are currently not driving any meaningful revenues, it is all work in progress today, Rajiv Sharma, head of research at SBICAP Securities, said. “Street is also factoring in some upside for Jio Platforms from JioMart post the FB deal. However, there is not much clarity of how much of the value would be split between telecom business and retail business of Jio.”
Emailed queries to RIL, Facebook, Silver Lake and Vista Equity remained unanswered.
A host of companies that Reliance invested in are part of Jio Platforms. These include music streaming service JioSaavn, online education platform Embibe, AI-powered virtual assistant Haptik. RIL has either made upfront investments or committed to invest more in these entities.
In case of JioSaavn alone, RIL invested and then merged it with its own digital music service JioMusic. The merged entity was valued at close to $1 billion.
In all, this involved combined investments and equity value of more than Rs 11,000 crore. After deducting these, the value attributable to the telecom business stands at Rs 5.05 lakh crore. Based on the average forecasts for Reliance Jio Infocomm’s operating income, it trades at 10.4 times its FY22 Ebitda.
At these valuations, Reliance Jio trades at a premium of 25 percent compared to its nearest peer – Bharti Airtel Ltd.
This premium valuation could be attributed to higher growth prospects and it being a debt free entity, said Sharma of SBICAP. Bharti Airtel trades at a discount at a consolidated level as it includes Africa and enterprise businesses that command lower multiples, he said.