In less than four weeks, Reliance Industries (RIL) has announced a fourth deal in which General Atlantic would invest Rs 6,600 crore in Jio Platforms for a 1.34% equity stake at post-money equity value of Rs 4,91,000 crore (in line) and EV of Rs 5,20,000 crore. Again, this deal showcases interest of global investors in Jio Platforms.
Further, along with the previous three deals — Facebook, Silver Lake and Vista — this could help RJio in realisation of its digital plans. With recent capital reorganisation, creation of InvIT and stake sales, Jio Platforms has virtually turned debt-free. Its net debt now stands at Rs 2,800 crore. We value Jio Platforms by assigning an EV/Ebitda multiple of 13x on FY22E to arrive at a target price of Rs 855 per share.
Post-InvIT and capital reorganisation efforts, RJio had a net debt of Rs 41,000 crore (prior to the Facebook deal). With Facebook’s Rs 14,700-crore (rest transferred to RIL) cash infusion, net debt reduced to Rs 26,300 crore. This further declined to Rs 9,400 crore owing to Silver Lake and Vista’s combined investment of Rs 16,900 crore. With General Atlantic’s current investment, the net debt would reduce further to Rs 2,800 crore. Prior to the equity stake sales, RJio’s debt reduction was a result of two major debt reclassifications — creation of the InvIT structure worth Rs 70,700 crore in FY20 to transfer its tower and fibre assets and the capital reorganisation in which it transferred debt of Rs 1,08,000 crore to the parent company. These moves enabled RJio to create a lean balance sheet structure in line with global tech giants. Ebitda hike opportunity along with these transactions could provide RJio with potential RoCE of 17.6% in FY21E.
We expect RJio to garner revenue/ Ebitda CAGR of 22%/44% over FY20-22E along with healthy Ebitda margin expansion. Despite the price hike, it witnessed lower-than-expected Arpu growth in Q4FY20. We believe RJio would accrue full benefit of the price hike in FY21. The favourable competitive landscape in the Indian telecom sector should offer healthy incremental Ebitda either through Arpu hikes or market share gains. We maintain our valuation for RJio at Rs 855 per share, assigning 13xEV/Ebitda on FY22E.
