Behind the investment rush of Jio

This could mean that Chiyo Platforms will raise about $5.7 billion more or sell 10% of their shares. But it turned out that the company eventually sold 12.4% of its shares to global investors and raised an additional $8 billion. The growth rate of Jio Platforms’ investments – $1.3 billion a week over the past six weeks – could soon reach the $15 billion mark.

It is as if the delay in the $15 billion deal with Saudi Aramco was of no consequence when it comes to the debt reduction plan explained by RIL on its books. In addition, the 7 billionth rights issue was exceeded 1.6 times – only a quarter of these funds were paid out in stages this year. Overall, the strong investor interest in the Hio platform is due to RIL, where the traditional oil companies are affected by Covid-19. RIL shares have risen by around a third since the announcement of the investment in Facebook, while the Nifty 50 Index has grown by less than 10% over the same period.

What drives investors to turn to the Hio platform? At the outset, Jio commented on a number of points, such as a controlled execution, an almost debt-free capital structure and the fact that he was on the right side of the settlement. But it is also a fact that private investment funds are washed away by money. Competition for assets remains fierce due to excess capital investment. According to a report published by PwC last February, Prequin estimates that the dry powder for raising private capital is about $2.5 trillion.

It also contributed to the increase in the share of technology companies such as Amazon and Facebook following the rise of the coronavirus, in stark contrast to the decline in markets as a whole. Social distance means greater use of technology and digital solutions, which encourages investors to turn to technology companies.

RIL took advantage of this increased interest to invest in technology and positioned Jio as a digital platform company. Investors dream of the day when customers will talk, shop, bank, read, write, eat, watch and listen to digital content and holidays will book with the Jio app. Connecting to Facebook adds even more weight to the package as the huge source of data and user settings can potentially be used to work effectively with customers.

According to an analyst report from CLSA d.d. 22. In May, after KKR announced a $1.5 billion investment in Jio’s platforms, the technology investments should help position Jio as a large technology company, not just a telecommunications company. Of course it is one thing to position yourself as a technician, and another to fulfill your promise through effective monetization. With $13.7 billion in support for investors, success doesn’t seem to have materialized, although, as some analysts note, questions remain unanswered.

Digital price

Strong competition for assets often leads to excessive purchase prices. Cio Platforms is estimated to be 35 to 40 % higher than Bharti Ertel Ltd. on the basis of EV/Ebitda EV stands for enterprise value and Ebitda stands for profit before interest, taxes, depreciation and amortisation.

While Airtel’s operations in India, with the exception of its stake in Bharti Infratel Ltd., are valued at about 9.5 times the value of Ebitda for FY22, the companies have assigned a value of about 13.5 times to Jio Platforms, an analyst at a multinational brokerage firm said, asking for anonymity. Of course, this is not a comparison between apples, because Airtel is still mainly considered a chick.

As if it wanted to support its digital complaint handling platform, Jio launched JioMart on Facebook shortly after the agreement was reached. The e-commerce company, which uses Facebook’s popular WhatsApp as its interface, has encountered some problems, although investors seem enthusiastic about the company’s long-term prospects. In addition, Jio has already acquired a number of companies, such as the streaming music company Saavn and the educational technology company Embibe, which has raised hopes of super pop.

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On our way.

Here’s a thought on how the Super-Express, hosted by WhatsApp and in conjunction with Facebook, can become a source of revenue.

In the pilot phase, the Gio JioMart application could be available in WhatsApp. Although both companies are in no hurry to make money, overtime can result in a fee for each transaction at JioMart via WhatsApp. This can be extended to product-independent e-commerce, charging a predetermined price when users pay for Jio applications such as Healthcare and Ed-Technology through WhatsApp, better collaboration on targeted advertising between the Facebook / Instagram and Reliance Retail brands, and finally, RIL can help Facebook better turn its market around, Bank of America Merrill Lynch analysts said in a statement to customers.

Comparisons are often made with the fact that Chiyo is the currency of India, but the success of this strategy cannot be taken for granted. First of all, the existing examples of Super PE such as WeChat network diagnostics. According to analysts, an application linked to a particular phone company creates a conflict of interest and undermines the purpose of the dinner.

Moreover, large companies such as Amazon have not been able to gain a foothold in Chinese markets, even though they already have a strong presence in India. Is success here a given? We don’t think so, especially when Amazon already has a strong presence in India and Walmart, Alibaba, Tencent have made strategic investments, Macquarie Capital analysts write about the prospects of the digital transformation, who talked about Gio.

It is clear that the premium paid by private companies must take into account the so-called lack of control over the digital life of millions of Indians, or in other words, must be a gateway to their digital editions.

How do we assess this optionality? Honestly, we don’t know. We’ve authorized a $10 billion selection in our agent business. (But) essentially, there is a significant asymmetry of information, write Macquarie analysts in a note to customers.

Facebook and private equity firms, which together have invested $13.7 billion in the Jio platforms, will obviously have more information about their operational structure than the public investors in RIL. Of course, that’s normal for a class. Moreover, from an investor’s point of view, RIL has little reason to complain, as long as the value is determined by one of RIL’s many weapons, be it Jio Platforms or Reliance Retail Ltd.

However, in order to understand the difference in the evaluation of the Gio platforms, it would be useful to define their structure more clearly. For example, the presentation of RIL’s quarterly results for the March quarter suggests that JioMart’s e-commerce activities are located in Reliance Retail, although it is not certain that Jio Platforms will derive commercial value from its contribution to the activities.

Regulatory advantage

Chiyo’s e-commerce projects have recently taken a prominent place in discussions with investors. India recently rejected a request from Walmart’s Flipcart company to enter the food retail market. In the past, the issue of foreign ownership in e-commerce has regularly been the subject of discussions with the government.

While there are similar concerns about Indian operations in the Amazon, in Gio’s case these issues disappear because of his inner identity. This does not mean that Amazon and Flipkart’s investments in the country will be written off, but it does put Chiyo in a winning position because he is on the right side of the rules. Investors are willing to pay a premium for this, says an analyst at a national institutional company.

Although the potential success of the digital platform is questionable, the fact remains that investors urgently seem convinced. At worst, they can only be overpaid by subscribers of the largest operator in one of the largest markets.

It is important to note that the telecommunications service itself does not have any hereditary problems that colleagues like Airtel and Vodafone Idea have to deal with, both in terms of operating costs and regulatory burden. It also has an almost debt-free balance sheet. So Gio noticed a lot of boxes before we even got to the point where we didn’t need any super expertise, says an analyst at a company dealing with the RIL rights issue.

According to SBICAP Securities Ltd. analysts, Jio’s market share in December 2019 was 35.4%, higher than Airtel’s 32.4% and Vodafone Idea’s 26.2%. In light of Vodafone’s grief, analysts estimate Chiyo’s market share at 42% by the end of the current financial year.

Debts

Although Chiyo’s growth has been impressive, it has been driven by the leverage in both the telecommunications sector and the parent company. When the Hyo platform was set up, most of the liabilities were transferred to the accounts of the parent company. Yet the balance of the digital enterprise is still inflated and the returns are not yet decent.

As far as the liabilities on the balance sheet of the parent company are concerned, the sale of Jio shares and the issue of subscription rights will bring significant relief over the next 18 months. But in order to keep the company debt free until March 2021, there must be other parties. The RIL of organic free cash flow (FCF) for FY21 appears to be seriously affected, and if investments in ₹60.000- ₹80.000 crore range remain, it will again be negative in FCF for FY21, analysts said in a note last month.

According to an analyst at one of the international brokerage firms, RIL’s debt at the end of March 2020 was approximately $21 billion, excluding other payments, such as supplier and service debt, which amounted to a further $21 billion. Other divestments, such as the sale of a stake in a fibre optic infrastructure company, may help to bridge the gap, especially when free cash flow is negative. And once the agreement with Aramco is concluded, the degree of debt relief will be considerable.

In any case, the transactions with Jio have significantly alleviated analysts’ and credit rating agencies’ concerns about the debt front.

As the current balance sheet appears more modest, the returns on RIL shares have outperformed the market in recent months. Since the start of Chiyo in September 2016, RIL shares have experienced an average annual growth rate of 36%, while the Nifty 50 index has only increased by 3.3%.

The big question is whether overly aggressive emergency investors can expect similar returns on their massive investments in Jio platforms. Much depends on the way in which the ambitions of the super experts are carried out. If investors just want to prepare for the growth expected in the history of telecommunications in India, in terms of rate increases, etc., Bharti Eyrtel is a much better game, says an analyst at a multinational brokerage firm.

Finally:

Although Jio has succeeded in realising the telecommunications part of Jio, the technological characteristics and the possibility to monetise it are not yet represented. As I said, success is not self-evident.

On the one hand, there is still worthy competition in many vertical Jio platforms. Secondly, success cannot be taken for granted for all RIL projects, even if it follows the previous story. RIL’s attack on oil and gas exploration and production in 2008 is an example of aspirations that even a world leader like BP could not achieve, according to Macquarie’s analysts.

So far, RIL’s investors can be pleased that their company is making optimal use of the surplus private capital.

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Topicsril debt,reliance owner,reliance jio stock price,reliance market cap