D-Street has already given a thumbs up to the deal between Jio and Facebook which pushed RIL stock up by about 8 percent in intraday trade on April 22. Most experts feel that it is a win-win situation for both the players to harness synergies at both ends.
Reliance Industries, Jio Platforms and Facebook announced the signing of binding agreements for an investment of Rs 43,574 crore by Facebook into Jio Platforms.
Reliance Industries (RIL) share price rose 10.30 percent to Rs 1,363.35 on BSE on April 22.
Due to today's gains, the market-capitalisation (m-cap) of the stock rose by Rs 80,700 crore to Rs 8,64,267 crore on April 22 against Rs 7,83,568 crore on April 21.
We have collated a list of top five takeaways for RIL shareholders from various experts reaction on the deal:
A win-win deal:
Amid the gloom and doom scenario across the world, a deal of this magnitude send a positive signal to the investment community especially if it is a global deal.
Experts feel that it is indeed a win-win situation for both the partners because the scenario across the world is changing fast, and the world we know would be highly dependent on technology post-COVID-19. It is a step in the right direction.
“It’s a win-win situation for both the partners, as on one hand, it gives Facebook a wider audience with Jio’s 388 million clients, it helps Reliance pay its debt as well as leverage the reach of Whatsapp, Facebook Chat’s service,” Aamar Deo Singh, Head Advisory, Angel Broking Ltd said.
“And with the current global scenario post-COVID-19, focus being on digital, it opens up huge business opportunities for both of the giants. It couldn’t have come at a more opportune time,” he said.
Jio valuation above analyst estimates:
Jio Platforms is a wholly-owned subsidiary of Reliance Industries Limited and is a next-generation technology company building a Digital Society for India by bringing together Jio’s leading digital apps, digital ecosystems and India’s #1 high-speed connectivity platform under one umbrella.
Reliance Jio Infocomm Limited, which provides connectivity platform to over 388 million subscribers. The 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% equity stake in Jio Platforms on a fully diluted basis.
“Facebook investment of Rs 436bn for 9.9% stake in Jio Platforms Limited (JPL) implies an Equity value of Rs 4.4tn. Enterprise Value stands at Rs 4.62tn pre-money as per company release,” Himanshu Shah, VP – Analyst (Media & Telecom) Dolat Capital said.
“Therefore, JPL net debt is ~Rs 220bn pre-transaction; net cash post transaction of ~Rs 216bn. Thus post-transaction Enterprise value of JPL is ~Rs 4.2tn. This is marginally (3%) above our estimate of Jio’s EV of Rs 4.1tn @ 10x FY22E,” he said.
Net debt reduction – key positive:
Jio’s strong execution and 400mn customer acquisitions in over 3 years has been commendable. However, this also led to investments of over $45bn and a debt of $30bn for Jio (pre InvIT).
“The investments by Facebook, Brookfield in Tower InvIT (yet to be closed) and potential investments in Fiber InvIT would significantly strengthen the balance sheet of RIL and is a key positive. This will enable Jio to continue to compete aggressively besides investing in futuristic technological advancements,” said Shah of Dolat Capital.
Invincible technological advancements:
Jio’s vision is to enable a Digital India for 1.3 billion Indians and Indian businesses, especially small merchants, micro-businesses and farmers.
Jio has built a world-class digital platform powered by leading technologies such as Broadband connectivity, Smart Devices, Cloud and Edge Computing, Big Data Analytics, Artificial Intelligence, Internet of Things, Augmented and Mixed Reality and Blockchain
“The collaboration with Facebook will give Jio a significant advantage on product and technological front to keep competitors miles away and grab a larger wallet share of consumers across domains viz. telecom, payments, retail etc.,” said Shah of Dolat Capital.
“Besides this Jio has made investments in more than 10+ start-ups and also tied-up with Microsoft for Cloud services,” he added.
Read through for Bharti Airtel and Vodafone Idea:
Premium valuations and massive investments in JPL is sentimentally positive for Bharti and Vodafone Idea for future investments by other players, if any, suggest experts.
“Financial and technological competitiveness of Jio increases significantly with Facebook investments for peers to catch-up and thus negative from a medium-term perspective. Jio is taking leap whereas others are taking a step,” says Shah of Dolat Capital.
Note: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
Catch our entire coverage on the Facebook-Jio Deal here.
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