Jio on Wednesday announced the signing of a binding agreement with Facebook for a 9.99% equity stake in Jio Platforms (RIL’s wholly-owned subsidiary which houses its digital investments and is also the holding company of Jio) for an investment (all-cash) of Rs 43,600 crore ($5.7 billion at the current exchange rate).
This values Jio at a pre-money EV of Rs 4,62,000 crore ($61 billion), which is ~12% higher than the Rs 4,11,800 crore (Rs 695/share) value we ascribe to the business in our SOTP. On the completion of the transaction, Jio’s capital structure would comprise ~Rs 4,36,000 crore of equity and ~Rs 26,000 crore of net debt (the latter down from ~Rs 42,000 crore).
Concurrent with the investment, Jio Platforms, Reliance Retail, and WhatsApp have also entered into a commercial agreement to further Reliance Retail’s new commerce venture JioMart (still at pilot stage) using WhatsApp and to support small businesses on WhatsApp. As has been previously communicated, a key element of RIL’s new commerce plans is to drive digitisation of mom-and-pop retailers. While still early days, the broad reach that WhatsApp enjoys in India could help towards scaling up of this business.
The transaction is subject to regulatory and other approvals and is expected to close in the next couple of months. This is a positive not just for the higher implied valuation for Jio that it helps cement, especially in the context of the current environment, but also for the potential upside in valuations of Reliance Retail (which we value at Rs 2,81,500 crore or Rs 475/share in our SOTP).
We maintain ‘buy’ on RIL with a target price of Rs 1,530; RIL is also our top large-cap pick in the sector. Despite the refining business facing headwinds, we expect RIL’s consolidated Ebitda to grow at an 18% CAGR over FY20-22E. RIL also continues to remain a big underweight for both DMFs and FIIs.