The government wants FDI to come into India and the JPL equity buying deals will add strength to its Invest in India campaign
When the whole world is in the grip of COVID-19 and all corporate news is about stress and investors looking for buyouts at throwaway prices, there have been two blockbuster technology investments in India in a thriving company.
On May 4, the US-based Silver Lake, a global leader in technology investing, decided to buy 1.15 per cent stake in Jio Platforms Ltd (JPL), a subsidiary of RIL, for Rs 5,655.75 crore. It paid 12.75 per cent more than what Facebook paid 12 days before on April 22 to buy 9.99 per cent of JPL for Rs 43,574 crore.
The new equity valuation of Rs 4.92 lakh crore of JPL is higher by 68 percent of the combined equity value of Bharti Airtel and Vodafone Idea; 40 per cent higher than the S&P BSE Index of top 23 TECk companies (excluding TCS, Infosys, Bharti Airtel & HCL Technologies); nine per cent more than second- and third-ranked Indian IT companies Infosys and HCL Technologies). The deal places JPL at fifth position in the listed entities after RIL, TCS, HDFC Bank, Hindustan Unilever.
Besides valuation, the huge demand of investments in JPL by big technology companies is sending an entirely different signal. Facebook as a company is known to all, even members of the general public, while Silver Lake is known to every big technology company as an investor. Its $40 billion in combined assets under management and committed capital, team of 100 investment and operating professionals, investments collectively generating more than $204 billion of revenue annually, and an employee strength of more than 3,56,000 people globally, are some indicators of its strength.
Its investments are in Twitter, Skype (sold to Microsoft), Dell, Alibaba, Alphabet (Verily & Waymo), Airbnb (one of the world's largest marketplaces for alternative accommodations), AMC Entertainment (the world’s largest movie exhibition company with 1,000 theatres and 11,000 screens around the globe), Didi (China's leading one-stop transportation platform for e-hailing of privately-owned vehicles and taxis), Weld North Education (a leading digital education platform) and the like.
Though so far not much information is available in the public domain, but the companies seeking investment disclose their full plans to their strategic investors. The deal size is indicative of bigger plans of the Reliance group. In a little over three years, Jio grabbed the top position which for long time was lorded over by Bharti Airtel and Vodafone Idea. Jio has replaced them from both the slots - revenue as well as customers shares. Is the group going to replicate the telecom model in digital space covering -- retail, education, marketplace -- suddenly in a big way.
Looking at the turn of events, the chances of this happening are very high. Amazon and Alibaba may feel the heat of legitimate competition, soon. Their alleged illegal activities of deep discounting through maze of companies is hurting the businesses of small traders. This alleged regulatory violation will disappear once equally attractive alternative platforms are available, with hands-off approach on pricing, to traders and customers.
The Reliance group’s strategy is to earn more through greater efficiency and volumes. Two years down the line, we may see a different avatar of JPL, converting everything touching the life of the common man to digital ways of living. A technology-driven company has skyrocketing margins and valuations. In a short span, JPL’s own valuation could be several times more than what RIL’s valuation is today. Facebook and Silver Lake picked their respective stakes at the right time.
With these two investments of about Rs 50,000 crore combined in JPL, Rs 25,125 crore investment by Brookfield in Reliance’s mobile tower Trust (Tower Infrastructure Trust) which is pending clearance from babus for the last 10 months, and Rs 53,125 crore of rights issue RIL announced on April 30, the group is heading to cut debt on its books as it aims to become a zero-net-debt company by March 2021. RIL’s net debt at the end of December 2019 stood at Rs 1.53 lakh crore while the cash in hand stood at Rs 1.3 lakh crore.
At a global level, the Facebook and Silver Lake investments showcase the attractiveness of the Indian technology space. The government wants FDI (foreign direct investment) to come into India and the JPL equity buying deals will add strength to its Invest in India campaign.Anil Kumar is the Editor-in-chief of Telecom Live and founder of Telecom Watchdog, an NGO. Views are personal.