Highlight of the day - Facebook acquired 9.99% stake in Reliance’s Jio platform for an investment of Rs 43,574 cr valuing it at Rs 4.36 lakh crore. That's 56% of market cap of RIL (~7.8 lakh cr) – huge right!!
A simplified thread on the deal, Jio platfrom and competition.
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A simplified thread on the deal, Jio platfrom and competition.
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Landmark deal:
📝Largest investment for a minority stake by a technology company ANYWHERE in the world
📝Largest FDI in the technology sector in India.
📝Values Jio Platforms amongst the top 5 largest listed cos. in India
📝Improves India's $ reserves & fiscal balances
Landmark deal:
📝Largest investment for a minority stake by a technology company ANYWHERE in the world
📝Largest FDI in the technology sector in India.
📝Values Jio Platforms amongst the top 5 largest listed cos. in India
📝Improves India's $ reserves & fiscal balances
3/n
Deal rationale - Facebook had $50B of cash on B/S making practically no money. Deploying $5.7 bn in Jio gives them broader access to India and India 2 retail users. For Reliance, it strengthens their consumer wallet share and brings big ability to cross service clients.
Deal rationale - Facebook had $50B of cash on B/S making practically no money. Deploying $5.7 bn in Jio gives them broader access to India and India 2 retail users. For Reliance, it strengthens their consumer wallet share and brings big ability to cross service clients.
4/n
Cross selling using Reliance Retail: Commercial partnership between Reliance Retail and WhatsApp to accelerate Reliance Retail’s New Commerce business on the JioMart platform using WhatsApp.
Reliance has denied has relevance of relation to this deal to the "super app" plan
Cross selling using Reliance Retail: Commercial partnership between Reliance Retail and WhatsApp to accelerate Reliance Retail’s New Commerce business on the JioMart platform using WhatsApp.
Reliance has denied has relevance of relation to this deal to the "super app" plan
5/n
Deal structure:
Reducing leverage of the parent: Of Rs 436 bn inflow, Rs 280 bn will be used to redeem OCPS of RIL and 150 bn retained in the Jio Platforms. Pre money equity value is Rs 4.21 tn.
Implied net debt for Jio Platform before transaction is Rs 410 bn.
Deal structure:
Reducing leverage of the parent: Of Rs 436 bn inflow, Rs 280 bn will be used to redeem OCPS of RIL and 150 bn retained in the Jio Platforms. Pre money equity value is Rs 4.21 tn.
Implied net debt for Jio Platform before transaction is Rs 410 bn.
6/n
Relevant subsidiaries of RIL:
🏦Jio Platforms: Wholly-owned subsidiary of RIL that gets 15K crores
🏦Reliance Jio Infocomm: Provides connectivity platform to over 388 mn subscribers, will continue to be a wholly-owned subsidiary of Jio Platforms. Gets zero from this deal.
Relevant subsidiaries of RIL:
🏦Jio Platforms: Wholly-owned subsidiary of RIL that gets 15K crores
🏦Reliance Jio Infocomm: Provides connectivity platform to over 388 mn subscribers, will continue to be a wholly-owned subsidiary of Jio Platforms. Gets zero from this deal.
7/n
About Jio:
📲 Jio launched in 2016; In 3 years since launch, Jio has ~39 cr subscribers (~37% market share and 40%+ of industry revenues).
📲 In FY 2019, Jio carried close to 71% of the total 4G traffic of India! Effectively 4G in India = Jio
About Jio:
📲 Jio launched in 2016; In 3 years since launch, Jio has ~39 cr subscribers (~37% market share and 40%+ of industry revenues).
📲 In FY 2019, Jio carried close to 71% of the total 4G traffic of India! Effectively 4G in India = Jio
8/n
🟢 Pace of gross subscriber additions has increased to 3.7 cr last quarter (290 Jio subscribers added every minute).
🛑Interestingly, there is a large churn of 22m subs last qtr, mainly due to company passing through IUC charge to customers for off-Jio network calls.
🟢 Pace of gross subscriber additions has increased to 3.7 cr last quarter (290 Jio subscribers added every minute).
🛑Interestingly, there is a large churn of 22m subs last qtr, mainly due to company passing through IUC charge to customers for off-Jio network calls.
9/n
Saturation in target market?
Churn in Q3 FY20 was the highest at 6.3%. This may depict high price sensitivity of Jio’s customers, being a late entrant and tapping the bottom of pyramid. This affects Jio’s ability to onboard new ones from here "organically"
Saturation in target market?
Churn in Q3 FY20 was the highest at 6.3%. This may depict high price sensitivity of Jio’s customers, being a late entrant and tapping the bottom of pyramid. This affects Jio’s ability to onboard new ones from here "organically"
10/n
Jio brought internet to the rural masses and effectively enabled 4G in India, driven by its significantly cheaper tariff plans for high-speed 4G connectivity - leading to massive increase in data consumption, largely video (tik-tok?)
Jio brought internet to the rural masses and effectively enabled 4G in India, driven by its significantly cheaper tariff plans for high-speed 4G connectivity - leading to massive increase in data consumption, largely video (tik-tok?)
11/n
Competition:
Jio is expected to become the # 1 telecom network in India by end of Q4FY20, taking share from Vodafone-Idea whose subscriber base is expected to see some churn with price hikes undertaken recently. Imminent price hikes look unlikely.
Competition:
Jio is expected to become the # 1 telecom network in India by end of Q4FY20, taking share from Vodafone-Idea whose subscriber base is expected to see some churn with price hikes undertaken recently. Imminent price hikes look unlikely.
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Customer experience - Positives
Jio’s investments in superior fiber based 4G technology helps it ensure a good customer experience and retain users – better 4G network connectivity and lower latency
Customer experience - Positives
Jio’s investments in superior fiber based 4G technology helps it ensure a good customer experience and retain users – better 4G network connectivity and lower latency
13/n
Customer experience - Negatives
Jio’s download speed while significantly faster than 3G speeds for incumbents, is slower in the 4G category due to significantly more users and cheap unlimited data tariff plans
Customer experience - Negatives
Jio’s download speed while significantly faster than 3G speeds for incumbents, is slower in the 4G category due to significantly more users and cheap unlimited data tariff plans
14/n
AGR issues and Airtel: Clarity on the issue of AGR dues should emerge soon with Airtel already having announced their intent to settle the same by Mar’20 post their successful QIP of $3 bn in Jan’20
AGR issues and Airtel: Clarity on the issue of AGR dues should emerge soon with Airtel already having announced their intent to settle the same by Mar’20 post their successful QIP of $3 bn in Jan’20
15/n
For Vodafone-Idea, its’ ability to negotiate a deferred payment schedule would be key to their survival. Inability to do this would mean they will file for bankruptcy and Jio and Airtel would be best placed to share the additional 325 mm odd customers
For Vodafone-Idea, its’ ability to negotiate a deferred payment schedule would be key to their survival. Inability to do this would mean they will file for bankruptcy and Jio and Airtel would be best placed to share the additional 325 mm odd customers
16/n
Implication for Telecom competition (Airtel and Vodafone) - there are both pros and cons for the peers. Suggest one to read this insightful write-up for details by @mobis_philipose
livemint.com/market/mark-to…
Implication for Telecom competition (Airtel and Vodafone) - there are both pros and cons for the peers. Suggest one to read this insightful write-up for details by @mobis_philipose
livemint.com/market/mark-to…
17/n
For a deeper perspective on the investment, please read @akm1410's note (behind paywall). Recommended.
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themorningcontext.com/a-note-on-the-…
For a deeper perspective on the investment, please read @akm1410's note (behind paywall). Recommended.
End/
themorningcontext.com/a-note-on-the-…
18/n
Addendum: Good details on possible WhatsApp synergies in this note by Rahil
Addendum: Good details on possible WhatsApp synergies in this note by Rahil
20/n
Read: One year of talks, Covid-19 hurdles and more. The backstory about the Facebook-Jio deal.
vccircle.com/one-year-of-ta…
Read: One year of talks, Covid-19 hurdles and more. The backstory about the Facebook-Jio deal.
vccircle.com/one-year-of-ta…
21/n
4 lesser known truths about the #FacebookRelJiodeal #FacebookJioDeal
Some good insights by Tanvi and I concur. The end game is large here.
4 lesser known truths about the #FacebookRelJiodeal #FacebookJioDeal
Some good insights by Tanvi and I concur. The end game is large here.
22/n
Interestingly, this is Facebook’s second largest investment to date.
Largest acquistions:
WhatsApp: $19 bn
Jio Platforms: $5.7 bn (10% stake)
Oculus VR: $2 bn
Instagram: $1 bn
CTRL-Labs: $1 bn
LiveRail: $500 mn
Onavo: $200 mn
Atlas: $100 mn
RedKix: $100 mn
Interestingly, this is Facebook’s second largest investment to date.
Largest acquistions:
WhatsApp: $19 bn
Jio Platforms: $5.7 bn (10% stake)
Oculus VR: $2 bn
Instagram: $1 bn
CTRL-Labs: $1 bn
LiveRail: $500 mn
Onavo: $200 mn
Atlas: $100 mn
RedKix: $100 mn
23/n
An insightful thread on the background of the multi billion dollar transaction. Covers a lot beyond what meets the eye.
An insightful thread on the background of the multi billion dollar transaction. Covers a lot beyond what meets the eye.
