The investment by private equity firm Silver Lake into Reliance Industries' Jio Platforms following Facebook deal and rights issue is clearly a confidence booster to shareholders, analysts and corporates when the COVID-19 spoiled the entire environment.
"Facebook deal was on right time and now Silver Lake is definitely positive Reliance. Also it is a big sentiment booster for the stock, though it is a future development and not current development," Ajay Jaiswal, Stock Market Strategist told Moneycontrol.
"Deal is much needed for Reliance Industries when there is a delay in Saudi Aramco deal though the company said due diligence is still on," he said.
Shailendra Kumar, CIO at Narnolia Financial Services also said deals were also showing way for positive momentum for Indian corporates in current environment of COVID-19-led lockdown started in last week of March.
Reliance Industries in its BSE filing on May 4 said Silver Lake would invest Rs 5,655.75 crore into Jio Platforms for over a 1 percent equity stake.
"This investment values Jio Platforms at an equity value of Rs 4.90 lakh crore and an enterprise value of Rs 5.15 lakh crore and represents a 12.5 percent premium to the equity valuation of the Facebook investment announced on April 22, 2020," it added.
Last month, Facebook picked up 9.99 percent equity stake in Jio Platforms for Rs 43,574 crore.
Experts feel the deal also indicated that there is lot of demand for such kind of businesses from global investors as RIL moved to next-generation technology company.
"The Silver Lake news coming right after the Rights Issue and Facebook deal is indicative of the fact that there is lot of interest from global players to participate in the digital growth story and people will jump the fence," Prakash Diwan of Altamount Capital Management told CNBC-TV18.
“After the Facebook deal, nobody thought that the re-rating could happen in 4 days. It has given tremendous confidence to shareholders of RIL. Silver Lake is an active PE player and has investments in Airbnb, Expedia, and Twitter, etc.,” he said.
Shailendra Kumar, CIO at Narnolia Financial Services also said the deal clearly indicated that henceforth core business of Reliance is consumer and not oil.
"Reliance Jio and Retail will drive topline and EBITDA going forward. Suddenly the company turned from old-fashioned business to new age company where the whole excitement is coming," he added.
Whatsapp getting local stores connected, where the business opportunity is humongous, and the stock rerating will definitely happen as it is showing confidence to other corporates in the current market environment.
Jio Platforms, a wholly-owned subsidiary of Reliance Industries, 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, said Reliance.
Reliance Jio Infocomm, which provides connectivity platform to over 388 million subscribers, will continue to be a wholly-owned subsidiary of Jio Platforms.
The company said Jio has brought transformational changes in the Indian digital services space and propelled India on the path towards becoming a global technology leader and among the leading digital economies in the world.
"With the imminent carving out of O2C (refining & petrochemicals) business soon; Reliance Jio is well on it's way to emerge as a pure digital play with characteristics akin to a FAANG stock. Jio platform would continue to be the first port of call for investors keen to bet on India's 130 crore strong population that is rapidly embracing digital services including e-commerce," Ajay Bodke, CEO PMS at Prabhudas Lilladher told Moneycontrol.
He remains extremely positive on the Chairman’s transformational vision and the leading role played by the next generation of promoters Akash and Isha Ambani in steering this venture.
Given the target of making Reliance net debt free by March 31, 2021 and strong developments towards the target, the re-rating is expected to happen soon, experts feel.
"Whatsapp-Jio getting local stores connected, where the business opportunity is humongous, and hence the stock rerating will definitely happen as it is showing confidence to other corporates in the current market environment. We are eagerly waiting for the company's plan of this deal," Shailendra Kumar said.
Vikas Halan, Senior Vice President, Corporate Finance, Moody’s Investors Service said Silver Lake's investment in Jio Platforms further illustrated Reliance Industries' (RI, Baa2 stable) ability and willingness to monetize its digital services business and reinforces the company's commitment to achieve a zero net debt position by March 31, 2021.
"Investment by Silver Lake is priced at a premium to recently announced investment by Facebook Inc. ($5.8 billion) and establishes another pricing benchmark for Jio Platforms. This is credit positive as it enhances RIL's already strong financial flexibility," he added.
Including the recently announced rights issue ($7 billion) and investments by Silver Lake and Facebook Inc, RIL has announced initiatives that could reduce net debt by about $13.6 billion from reported net debt of $21.4 billion as on March 31, 2020, Vikas said.
Deepak Jasani, Head of Retail Research, HDFC Securities
Following the clue given by Reliance at the time of Facebook investment that it is in good shape to announce a similar-sized investment in the coming months, the investment by Silver Lake Partners to acquire 1.15 percent stake in Jio Platforms is welcome. The 12.5 percent higher valuation in this round may be due to much smaller investment by Silver Lake (compared to Facebook) and the fact that unlike Facebook they would operationally not bring any benefit on table.
Also currently private equity investors seem to have more capital than they know what to do with. This announcement has helped to partly offset the negative effect on the stock price of subdued Q4FY20 results announced by the company on April 30.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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