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Opportune moment for the Jio-Facebook deal, fair value of RIL stock at Rs 1,800: Experts

Facebook deal is a part of deleveraging balance sheet by Reliance Industries and RIL wants to sell stake in key segments to reduce the debt burden, experts feel.

April 22, 2020 / 02:31 PM IST
 
 
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Facebook Inc to be buying 9.99 percent stake in Jio Platforms is a win-win game for Reliance Industries, especially at a time when the global economy is facing a hard time due to lockdown forced by novel coronavirus or COVID-19, experts feel.

Reliance Industries, Jio Platforms and Facebook Inc on April 22 announced the signing of binding agreements for an investment of Rs 43,574 crore by Facebook into Jio Platforms.

"This investment by Facebook values Jio Platforms at Rs 4.62 lakh crore pre-money enterprise value ($65.95 billion, assuming a conversion rate of Rs 70 to a US Dollar). Facebook’s investment will translate into a 9.99 percent equity stake in Jio Platforms on a fully diluted basis," said Reliance Industries in its BSE filing.

Sanjiv Bhasin of IIFL, who is extremely bullish on digitalisation, said Rs 1,800 is the fair value for Reliance Industries given the Facebook deal and robust Reliance Jio business model.

"I am extremely positive on Reliance Industries. In such kind of crisis, the deal shows that money never be a problem. I think it is the biggest deal in technology business. Corporates know the value of digital media business in current COVID-19 led crisis and India is the big place for such business," he told Moneycontrol.

There would definitely be rerating of the stock, though Saudi Aramco deal may get delayed due to current sharp fall in oil prices, he said.

Reliance Industries share price jumped 11 percent intraday after the deal announcement.

"The rally in share price of Reliance is clearly indicating that markets have given a thumbs up to this business decision, as it paves the eventual listing of Jio which is in the process to transform itself into a digital services company," Aamar Deo Singh said.

On the other hand, Facebook would also gain as it gives it access to huge digital business opportunities in India, he added.

Facebook deal is part of a plan to deleverage balance sheet by Reliance Industries, experts feel.

CMD, Mukesh Ambani in the last AGM said Reliance had a very clear roadmap to becoming a zero net debt company within the next 18 months.

Opportune Time for Deal

Experts feel the deal has come at an opportune time when the people or corporates really feel the need for digitalisation as the economy is stalled due to COVID-19.

"With the current global scenario, it opens up huge business opportunities for both of the giants. It couldn't have come at a more opportune time. And with India slated to have 900 million internet users in a few years, as per a CISCO report, limitless potential opens up," Aamar Deo Singh said.

Sanjiv Bhasin also feels considering the current telecom and digital environment, data is the biggest essential commodity for people. As a result, the average revenue per user will increase for Reliance Jio and Bharti Airtel and both will increase tariffs going ahead, he said.

"Jio is firing on all guns. If we see the Netflix data which said viewers increased to 15 million against their expectations of 8 million, the data is going to be a key factor for telecom companies and digitalisation is a big game," he added.

Shailendra Kumar, CIO at Narnolia Financial Services also feels as the economy is in jolt, Jio is doing good and there is no dent in telecom business, it is a growing business.

RIL brought telecom business in a big way as it captured 34-35 percent market share in few years and has been trying to reach the market share to 44 percent by FY22, he said.

Shailendra feels RIL will increase market share to 40 percent by FY22, followed by Bharti Airtel with 32 percent share, BSNL 10 percent and rest with Vodafone Idea. "It has some room to gain market share. RIL and Bharti Airtel will see their average revenue per user rising."

Sumit Bilgaiyan, Founder of Equity99 also said by this partnership company can drive improved market share gain for Jio compared to peers.

"This opportunity is to monetize customers through non-telco revenue stream. There should be strong synergy benefits for RIL's Jio business and Facebook. Deal will allay investor worries on Reliance large debt," he added.

Saudi Aramco Deal

Shailendra Kumar believes Saudi Aramco would change the valuation of RIL if it is done in coming quarters.

Aramco deal in oil & gas is still yet to come in which Petrochemicals and refining business is taking major role.

"The Aramco deal is supposed to be near to Rs 1.1 lakh crore for around 25 percent stake. If this happens then it would be as per the statement given by Mukesh Ambani and management in last AGM about making the company debt free," Sumit Bilgaiyan said.

RIL at this position is top in many sectors like Telecom, Media, Retail, so the market cap is likely to go 2-3 times from now in coming 18-24 months, he added.

Narnolia has not changed the target of Rs 1,470 in terms of earnings as the deal will not make material difference to numbers on the immediate part but will help in the longer run.

Reliance Industries said Reliance Jio Infocomm, which provides connectivity platform to over 388 million subscribers, would continue to be a wholly-owned subsidiary of Jio Platforms.

Catch our entire coverage on the Facebook-Jio Deal here.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

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Sunil Shankar Matkar