Vista Equity Partners will pick up a 2.32 percent stake in Jio Platforms for Rs 11,367 crore, making it the third high-profile investment in Reliance Industries' unit in as many weeks.
Experts feel the deleveraging process seems to be on a fast track and huge digital opportunities going ahead will take Jio to new scale in terms of business as well as valuations.
"Firstly from value of $50 billion that Facebook had given to now new deal at a premium to even the Facebook deal, 12.5 percent premium, suggested a value of $63-64 billion for Jio Platforms. So at the current level itself there is a scope for higher valuations," Jal Irani, Senior Vice-President - Wholesale Capital Markets at Edelweiss Financial Services told CNBC-TV18.
"Potential for growth tends to be extremely significant and it is how Reliance will execute this growth which will drive value going forward," he said.
Siddhartha Khemka, VP - Head of Research (Retail) at Motilal Oswal Financial Services also told Moneycontrol that it is definitely a positive deal with global private equity firms which generally invest for 4-5 years and they are big tech PE firms with large business sense and ideas.
"Net-net the money will be good for their capex and growth plans. With long term support from such PE investors, they can get more ideas from global companies where they invest globally, which will ultimately help Reliance to scale up business very fast in coming years," he said.
Follow all of our coverage on Jio-Vista Equity Partners deal here
This investment values Jio Platforms at an equity value of Rs 4.91 lakh crore and an enterprise value of Rs 5.16 lakh crore, company in its BSE filing said, adding Vista's investment will translate into a 2.32 percent equity stake in Jio Platforms on a fully diluted basis, making Vista the largest investor in Jio Platforms behind Reliance Industries and Facebook.
"I already said they will be monetising total 15 percent stake, of which they already completed 13.47 percent stake sale (to Facebook, Silver Lake and Vista Equity Partners) and the rest around 1.5 percent will give them additional Rs 7,500 crore. And another 10 percent stake will be retained for IPO which may be likely by March 2021. So Reliance Industries eventually will be wanting to keep 70-75 percent stake of Jio Platforms with themselves," SP Tulsian of sptulsian.com told CNBC-TV18.
He said so net around Rs 68,000 crore will come in Jio Platforms, and Rs 54,000 crore of rights issue, making total of around Rs 1.22 lakh crore, while the net debt as of March 31, 2020 is Rs 1.61 lakh crore. They are still short of around Rs 40,000 crore which the company needs to garner.
"If I add FY21 cashflow of RIL on standalone basis that gives me around Rs 25,000 crore. Then also there is still a shortage of around Rs 20,000 crore," he added.
He said Jio Platforms also has debt of Rs 25,000 crore and they would be requiring capex of Rs 30,000-50,000 crore on annual basis as they may be upgrading their technology to 5G.
Hence, Tulsian said eventually the market would be looking that Saudi Aramco deal has to happen. "Originally it was envisaged to be happening at $75 on EV valuation of O2C business. Now I am expecting that to be around $60 a barrel. Even if I take 20 percent dilution of stake that gives me around $12 billion dollars or Rs 90,000 crore."
"So we have about Rs 54,000 crore from rights issue, Rs 90,000 crore from Saudi Aramco deal and Rs 25,000 crore of cash flow FY21 from RIL standalone that makes the perfect equation," he said.
Siddhartha Khemka feels if debt comes down, the debt rating will improve which will help the company to reduce the cost of debt and as a result overall debt cost of Reliance Industries will also come down.
According to him, Reliance Jio IPO is unlikely before at least next three years given the investment by these PE firms. "Jio Platforms is doing very well and if they continue with small stake sale with global investors then they might not need to do Jio IPO also in future."
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