Why In­dia’s Jio Plat­forms Leave In On An In­vest­ment Spree

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Jio Plat­forms is on a tear. The tele­coms and dig­i­tal arm of the In­dian con­glom­er­ate Reliance In­dus­tries Lim­ited (RIL) has raised US$15.2 bil­lion in 11 deals over two months amid a world­wide pan­demic. “RIL seems to have mas­tered [deal­mak­ing] bet­ter than any­one else,” Sanchit Vir Go­gia, CEO of dig­i­tal ad­vi­sory firm Grey­hound Re­search, said in a note this month.

“It’s hard to find a par­al­lel to this any­where else in the world.”

The fundrais­ing flurry be­gan with a block­buster an­nounce­ment on April 22 that RIL was sell­ing a 10 per cent stake in Jio Plat­forms to Face­book for US$5.7b (FJ$ 12.39b).

Jio Plat­forms made sub­se­quent deals with U.S. pri­vate eq­uity firms KKR, Vista, Gen­eral At­lantic, TPG, L Cat­ter­ton, and Sil­ver Lake, whose deal has two parts.

It also se­cured in­vest­ment from United Arab Emi­rates funds Mubadala and the Abu Dhabi In­vest­ment Author­ity.

In the most re­cent deal, Jio Plat­forms an­nounced that Saudi Ara­bia’s sovereign fund will in­vest US$1.5 bil­lion for a 2.3 per cent stake in the com­pany.

Af­ter the Saudi deal, RIL claimed on Fri­day that it is now “net debt free,” a feat it achieved nine months ear­lier than ex­pected.

All told, RIL has sold 25 per cent of Jio Plat­forms and could soon part with an­other stake, as it re­port­edly con­sid­ers a deal with ei­ther Google or Mi­crosoft.

Both are re­port­edly vy­ing to buy a 6 per cent share in the com­pany.

(Google and RIL did not re­turn For­tune’s re­quests for com­ment, and Mi­crosoft said it didn’t “have any­thing to share” about a po­ten­tial deal.)

In ad­di­tion to pay­ing off debt, the cap­i­tal will likely be used to pre­pare for an over­seas IPO for Jio Plat­forms, says Am­ba­reesh Baliga, an in­de­pen­dent stock mar­kets an­a­lyst in Mum­bai. An­a­lysts pre­dict the com­pany could de­but at a val­u­a­tion of US$100b (FJ$217b)

Cur­rently, Jio Plat­forms is not listed on any stock ex­change; its par­ent is listed in Mum­bai and New York.

The pan­demic seems to have ac­cel­er­ated the am­bi­tions of chair­man and man­ag­ing di­rec­tor Mukesh Am­bani, Asia’s rich­est man, who wants to tran­si­tion his RIL con­glom­er­ate away from oil to­ward dig­i­tal in­dus­tries.

But whether Jio Plat­forms can ride its re­cent in­vest­ment wave to be­come In­dia’s first bona fide tech gi­ant will de­pend on whether the tele­com op­er­a­tor can morph into a dig­i­tal em­pire pow­er­ful enough to beat out stiff com­pe­ti­tion in In­dia and from abroad.

From tex­tiles to tele­coms

Am­bani’s fa­ther, Dhirub­hai Am­bani, founded Jio Plat­forms’ par­ent com­pany, RIL, as a tex­tile man­u­fac­turer in 1973.

Through the 1970s and 1980s, the se­nior Am­bani ex­panded the busi­ness into pro­duc­ing chem­i­cal pre­cur­sors for the tex­tiles and, even­tu­ally, into pe­tro­leum.

At the time of the pa­tri­arch’s death in 2002, RIL was In­dia’s largest con­glom­er­ate, with the ma­jor­ity of its rev­enue com­ing from its oil di­vi­sion.

His pass­ing sparked a fierce bat­tle over the com­pany be­tween his two sons, Mukesh and his brother, Anil.

The sib­lings even­tu­ally agreed to split con­trol of the em­pire in a 2005 deal bro­kered by their mother.

Mukesh took con­trol of RIL’s oil as­sets, and Anil got the com­pany’s tele­com di­vi­sions.

The truce proved tem­po­rary

In 2010, Mukesh reen­tered the tele­com space by pur­chas­ing a small mo­bile tele­com net­work op­er­a­tor called IBSL.

Mukesh would later use IBSL as a ve­hi­cle to buy the rights to wide swaths of In­dia’s bands in gov­ern­ment-run spec­trum auc­tions, even­tu­ally run­ning his own brother out of the tele­com busi­ness in 2018.

Data is the new oil

Af­ter pur­chas­ing spec­trum rights early last decade, RIL’s for­ays into tele­coms and dig­i­tal in­dus­tries ramped up in earnest in Septem­ber 2016, when its sub­sidiary, Reliance Jio In­fo­comm, launched 4G ser­vices in In­dia.

The com­pany claims it at­tracted 100 mil­lion sub­scribers in its first six months and has since amassed 388 mil­lion sub­scribers as of April 2020, ac­cord­ing to RIL fi­nan­cial state­ments.

A com­pany re­struc­tur­ing in Novem­ber 2019 saw RIL bring all its dig­i­tal ini­tia­tives—in­clud­ing Reliance Jio In­fo­comm—un­der the new Jio Plat­forms um­brella.

“In this new world, data is the new oil. And data is the new wealth,” chair­man Am­bani said last year.

Cap­i­tal­is­ing on a cri­sis

As the coro­n­avirus pan­demic struck In­dia, it cre­ated con­di­tions con­ducive to RIL’s dig­i­tal push.

In­dia was un­der com­plete lock­down for roughly a month start­ing in late March, and is now en­gaged in a par­tial re­open­ing as COVID-19 cases con­tinue to spike across the coun­try.

“COVID-19 lock­down has forced even the non– tech savvy In­di­ans to move on­line,” said Baliga. In­dia’s gov­ern­ment re­ported that In­ter­net us­age surged by more than 13 per cent­dur­ing the lock­down.

“In nor­mal cir­cum­stances this could have taken a few years to shift, but it hap­pened in a few weeks,” he said.

The lock­down In­ter­net boom, paired with a global down­turn in oil prices, saw Jio Plat­forms in late April be­come nearly as valu­able as all of RIL’s other prop­er­ties com­bined. Re­cent in­vest­ment deals have val­ued Jio Plat­forms at US$65b (FJ$141), whereas RIL’s to­tal mar­ket cap­i­tal­iza­tion on the Nas­daq is US$133b (FJ$ 289b).

Face­book’s in­vest­ment helped boost the com­pany’s over­all value. Shares in RIL jumped more than 8 per cent on the New York Stock Ex­change fol­low­ing the April deal.

The Face­book deal ap­pealed to in­vestors since it al­lows Jio to lever­age the Face­book-owned

What­sApp’s wide reach in the In­dian mar­ket.

That syn­ergy is now un­der in­ves­ti­ga­tion, with In­dia’s an­titrust watch­dog prob­ing the deal for po­ten­tial an­ti­com­pet­i­tive con­duct, ac­cord­ing to Bloomberg.

As of now, there is no time­line for the watch­dog’s de­ci­sion.

A dig­i­tal em­pire?

Jio Plat­forms’ tele­com ser­vices have the largest sub­scriber base among providers in In­dia, but its other dig­i­tal ini­tia­tives re­main in early stages of devel­op­ment.

JioMart, an e-gro­cery de­liv­ery plat­form, launched lim­ited ser­vices in Jan­uary.

The com­pany aimed to use Reliance Re­tail, an RIL sub­sidiary with 12,000 stores in over 6,600 towns and cities across In­dia, and a net­work of lo­cal cor­ner stores across the coun­try as the back­bone of its e-com­merce am­bi­tions.

Days af­ter Face­book’s in­vest­ment, Jio Plat­forms an­nounced that cus­tomers could place gro­cery or­ders via the Face­book-owned What­sApp mes­sag­ing ser­vice, a use­ful tool for home­bound con­sumers.

But Jio Plat­forms had to tem­po­rar­ily sus­pend the What­sApp ser­vice this month af­ter or­ders went un­filled ow­ing to a short­age of de­liv­ery driv­ers.

E-com­merce is the com­pany’s most promising fron­tier be­cause 90 per cent of In­dia’s mas­sive and di­verse re­tail sec­tor re­mains off­line, says Ami­tendu Palit, a se­nior re­search fel­low at the NUS In­sti­tute of South Asian Stud­ies in Sin­ga­pore.

But be­fore Jio can be­come In­dia’s “ev­ery­thing store,” it will have to out­ma­neu­ver for­eign com­peti­tors and lo­cal com­pa­nies backed by deep-pock­eted out­side in­vestors. Es­tab­lished egro­cery play­ers, Alibaba-backed BigBas­ket and the north­ern In­dia–based Gro­fers, re­ported a surge in sales amid In­dia’s lock­down. Mean­while, Ama­zon and Wal­mart-backed FlipKart are smaller play­ers in the gro­cery space but con­tinue to dom­i­nate In­dia’s e-com­merce sec­tor gen­er­ally.

The ‘depth to do it’

Still, Jio may be bet­ter poised than oth­ers to dig­i­tize In­dia’s re­tail space.

“There’s a great amount of ef­fort that needs to be put into dig­i­tal lit­er­acy, and dig­i­tal busi­nesses, across a vast seg­ment of un­or­gan­ised sec­tor op­er­a­tors,” says Palit.

“Reliance is prob­a­bly the only com­pany in In­dia that ac­tu­ally has that kind of breadth and depth to do it.”

In its quest for tech dom­i­nance, Jio Plat­forms is also count­ing on the suc­cess of a suite of Jio mo­bile apps, in­clud­ing mu­sic stream­ing ser­vice JioSaavn, dig­i­tal cur­rency JioMoney, and video­con­fer­enc­ing plat­form JioMeet, which gar­nered 100,000 down­loads in the run-up to its of­fi­cial re­lease.

These soft­ware ca­pa­bil­i­ties, com­bined with Jio’s vast tele­com sub­scriber base and a net­work of phys­i­cal re­tail out­lets, may uniquely po­si­tion Jio to dom­i­nate In­dia’s dig­i­tal sphere—or so Jio’s new in­vestors would like to be­lieve.

“Few com­pa­nies have the po­ten­tial to trans­form a coun­try’s dig­i­tal ecosys­tem in the way that Jio Plat­forms is do­ing in In­dia, and po­ten­tially world­wide,” Henry Kravis, co­founder of KKR, said in a state­ment an­nounc­ing the firm’s in­vest­ment.

“Jio is a dis­rup­tive in­dus­try leader that is em­pow­er­ing small busi­nesses and con­sumers across In­dia by pro­vid­ing them with crit­i­cal, high-qual­ity dig­i­tal ser­vices,” Jim Coul­ter, cochief ex­ec­u­tive of­fi­cer of TPG, said in a state­ment an­nounc­ing his firm’s deal.

Yet com­pe­ti­tion is likely to stiffen as Amer­i­can tech giants eye the tele­com sec­tor as a launch­pad to strengthen their foothold in In­dia’s grow­ing dig­i­tal mar­ket.

Ama­zon, for in­stance, is re­port­edly in talks to buy a 10 per cent stake in Bharti Air­tel, In­dia’s third-largest tele­com op­er­a­tor.

Google, in ad­di­tion to its re­ported in­ter­est in Jio, is con­sid­er­ing tak­ing a 5 per cent stake in Voda­fone Idea, In­dia’s No. 2 tele­com com­pany be­hind Reliance.

How­ever, as a vast con­glom­er­ate with many re­tail out­lets, RIL gives Jio Plat­forms a “strong lo­cal ground pres­ence” in com­mu­ni­ties across In­dia, says Palit.

Us­ing this net­work as a base, the com­pany says Jio Plat­forms aims to in­clude mil­lions of small mer­chants, mi­cro-busi­nesses, and farm­ers in its dig­i­tal net­work.

Face­book chief ex­ec­u­tive of­fi­cer Mark Zucker­berg said in April that he’s part­ner­ing with Jio Plat­forms for ac­cess to the “60 mil­lion small busi­nesses [in In­dia] and the mil­lions of peo­ple [who] rely on them for jobs.”

Jio has a long way to go be­fore be­com­ing a global tech gi­ant, Palit says, but Jio’s lo­cal fo­cus gives it an ad­van­tage in tap­ping into In­dia’s vast off­line mar­ket.

“Where else in the world now to­day can you ex­pect to see this kind of dig­i­tal growth?” he says.

Mukesh Am­bani (right) with his brother, Anil, in Mum­bai in 2006.

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