Facebook will spend $5.7 billion (Rs 43,574 crore) for 9.9 per cent of Reliance Industries Limited’s telecom business Reliance Jio, as the social media giant looks to leverage its popular WhatsApp messenger to offer digital payment services to small grocers in India.
The deal gives the social media giant a firm foothold in a fast-growing market and will help the Indian oil-to-telecom conglomerate cut debt and boost its new online grocery marketplace JioMart.
Facebook's investment will make it the largest minority shareholder in Jio Platforms, Jio said on Wednesday, putting the enterprise value of the business at about $66 billion Rs 4.62 lakh crore.
Jio Platforms holds a host of Reliance's digital assets including Jio Infocomm, which has become the country's largest telco within about three years of its launch. It has 388 million subscribers.
"In the near future JioMart ... and WhatsApp will empower nearly 30 million small Indian kirana shops to digitally transact with every customer in their neighborhood," Mukesh Ambani, Reliance's chairman said in a video statement.
Brokerages see this deal as an important development and will benefit both - Facebook and Jio. Here is what they have to say about this deal:
Jefferies says the transaction reflects a turnaround for the sector. Jefferies says the deal implies a pre-money equity valuation of Rs 43,600 crore for Jio Platforms, CNBC-TV18 said.
The deal implies an enterprise value of Rs 4.7 lakh crore and valuation implies a forward EBITDA of Rs 398-477 billion. The company also has Rs 41,000 crore of net debt on Jio Platforms’ balance sheet.
The valuations suggest that Facebook expects Jio's EBITDA to double from current levels, Jefferies added. The transaction sets benchmark valuation for any listing in the future for Jio Platforms, it said.
Brokerage: Angel Broking
Aamar Deo Singh, Head Advisory, Angel Broking, said it’s a win-win for both the partners. It gives Facebook a wider audience with Jio’s 388 million client and helps Reliance pay its debt as well as leverage the reach of WhatsApp, Facebook messenger service.
"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. And with India slated to have 900 million internet users in a few years, as per a CISCO report, limitless potential opens up," Singh said.
"Reliance is already up almost 7 percent in today’s day of trade, clearly indicating that markets have given a thumbs up to this business decision, as it paves the eventual listing of Jio which is in the process to transform itself into a digital services company. On the other hand, Facebook would also gain as it gives it access to huge digital business opportunities in India.”
Brokerage: DART Research (Dolat Capital)
Facebook investment of Rs 43,600 crore for 9.9 percent stake in Jio Platforms implies an equity value of Rs 4.4 lakh crore, the brokerage said.
"Enterprise Value stands at Rs 4.62 lakh crore pre-money as per company release. Therefore, Jio's net debt is nearly Rs 22,000 crore pre-transaction; net cash post transaction of about Rs 21,600 crore. Thus, post-transaction enterprise value of Jio is about Rs 4.2 lakh crore. This is marginally (3 percent) above our estimate of Jio’s EV of Rs 4.1 lakh crore at 10 times FY22E," DART Research said.
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 the brokerage.
Brokerage: Edelweiss Securities
Jal Irani of Edelweiss Securities believes Facebook-Jio deal was done at a higher value than expected but synergies in the agreement were massive. Talking to CNBC-TV18, he said WhatsApp being used with JioMart was an important development.