Jio’s FB deal, business model implications and some possibilities

Facebook has signed a binding agreement to acquire a 9.99% stake in Jio Platform Ltd for Rs435.74bn (US$5.7bn at current INR/US$). This implies an equity value of Rs4,358bn or US$57bn (Rs. 4,35,800 Cr) for Jio Platform Ltd. Yes, Jio is being valued higher than almost all listed firms in India. In fact only HUL, TCS and HDFC bank are valued higher. And Rs. 4.35 Lakh Cr is 2x the market capitalisation of ITC, ICICI Bank, Asian Paints, Infosys, HDFC. ~2x of each of them.

Now back form theatrics. What is Jio Platform?

The entity houses all of Reliance’s digital businesses viz the telecom service business of Jio (mobile and broadband), Jio’s suite of apps, digital investments (KAI-OS, Haptik etc) and tech capabilities like big data, AI, IoT etc.

What’s the cash impact on Reliance?

This is the only section where we will talk about Reliance overall. This is new equity — so dilution of all investors. Part of the cash will be used to buyback RIL’s optionally convertible preference shares (OCPS) while the remaining will stay as cash in the books of Jio Platform. Combined with Rs. 7000 Cr stake sale to BP in the oil marketing JV, net debt/EBITDA of RIL should fall to ~1.5x by Mar22 from current levels of 2.7x. So all good here.

In terms of business structure, the following pic explains how overall Jio will work.

The Jio model

Now the big deals

RIL’s partnership with Facebook will set the stage for the company to commercialize its digital capabilities beyond the connectivity platform and accelerate rollout of its new commerce venture to further scale up its retail business in a significant way. It also sets the course for deleveraging of RIL’s BS amid apprehensions of delays in its O2C transaction with Saudi Aramco.

Now, some numbers. Sample this — FB has undoubtedly established itself as the largest social engagement platform in India with a user base of 400 mn+ on WhatsApp, 350 mn+ on Facebook and 80 mn+ on Instagram. RIL has 388 mn subscriber base and a retail business with the largest network of 12,000+ brick-and-mortar store. Combined, they will cover the whole of India that is worth targeting.

While they have not been very successful, the following is where stated Jio’s interest lie. The spectrum is big. It’s about to get bigger. And maybe, better.

Business breadth of Jio

And the specifics

First up — Partnership with Whatsapp — A commercial partnership has also been signed with Facebook-owned Whatsapp, which will further accelerate JioMart — the upcoming O2O offering of Reliance Retail whereby Whatsapp will be used to provide solution to mom-and-pop partners, small merchants and also raise convenience and reach of consumers.

Overall, the sheer possibilities with this deal that has opened is immense — 1. Commerce, 2. Payments and fintech services and 3. Media and content, which may be provided to end-users, small merchants, kirana stores and MSMEs to begin with and can be extended to other domains such as agriculture, education and healthcare.

The stated focus of the JV is to help India’s 60 million MSMEs, 120 million farmers, 30 millions SMEs and other independent small entrepreneurs. The medium for this is the much touted “Jio Mart” — Now what this means for a slew of business models — Including, but not limited to Meesho, Just Dial, IndiaMart — Some of the hardest hit firms.

And also, for people like Grofers, BigBasket, this is going to be a real competition — Some really interesting times ahead for internet based D2C, B2B, B2B2C firms — Need to closely watch these as how to the ecosystem is evolving. This event is more catastrophic for VC investors than public ones in a way.

The $300 bn grocery market is going to see some major “disruptions”. Jio Mart, combined with Whatsapp, is a game changer, no matter what. Of the current Rs. 1363 share price, a whopping Rs.1000–1200 is ascribed to Jio and Retail by different brokerages. This is dangerous for all kinds of business models — Whether inventory led or marketplace led. Jio is NOT a telecom player, it’s a retail player. Don’t confuse the two.

For payments, FB and Jio may together offer a payments solution along with their connectivity and commerce platforms, which will perhaps allow them to overcome the entrenchment of users in largely payment-focused offerings from the competition.

For media & content, Jio may consider commercializing its bouquet of apps in media and content ecosystem such as JioCinema, JioSaavn and JioNews, beyond Jio’s connectivity user base by offering a seamless access to the users in FB’s network perhaps through an advertisement-based model.

This will allow both FB and Jio to enhance engagement levels with the users, especially in non-urban areas, who may not be willing to pay for premium subscription-based content offerings from the competition.

Overall, a new, different world order is coming. Ecommerce, Aggregators (Just Dial, Indiamart), Groceries, Media, Fintech — All are going to be Jio-fied! Look out.

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