From Telecom Player to Digital Platform: How Reliance Has Re-positioned Itself With Time?
Reliance Industries Limited became net debt-free
In contrast to the drop in markets, shares of technology companies such as Amazon and Facebook have risen since the corona-virus outbreak. Social distancing has meant increased usage of technology and digital solutions, which is driving investors towards tech companies. Jio ticks a number of boxes such as proven execution, a nearly debt-free capital structure and being on the right side of regulation leading to investor interest.Three years after its launch, Jio Infocomm has emerged as the country’s biggest telecom player, with a subscriber base of 38.75 crore.
RIL has tapped into heightened interest for technology investments by positioning Jio as a digital platform company.The cumulative investment resulting from 12 deals struck by Reliance Industries for its digital unit, Jio Platforms Ltd., in the span of nine weeks from Apr 22, 2020 to Jul 3, 2020, amounts to Rs 117,588.45 crore at 25.09 % Stake. In addition to that, the recent RIL rights issue garnered Rs 53,124.20 crore. Overall, Reliance raised about Rs 170,713 crore in two months.
The company’s net debt was Rs 161,035 crore as on March 31, 2020. Based on the above investments & rights issue, RIL declared on June 19 that it had become net debt-free eight months ahead of the March 2021 deadline it had set for itself in its 41st Annual general meeting.
Looking at the balance sheet, Reliance has significantly improved its financial position following the transactions, as the net debt to equity will fall significantly from 0.51x in FY20 to 0.06x in FY21 which is the lowest in almost a decade. estimated EBITDA for FY21 of Rs 86,000 crore, almost double of what it was a few years ago. It has raised the (share) price target for RIL share from Rs 1,720 to Rs 1,870. Even though, earnings will soften in FY21 due to corona-virus, it seems that Reliance Industries is at the start of a secular growth period driven by telecom, retail and new economy related business.
Jio- Facebook deal
Out of above 12 deals,One of the most significant deal that RIL stroked was with Facebook. Facebook invested Rs 43,574 crore in Jio Platforms for a 9.99% stake in an all-cash deal. It helped the oil-to-retail conglomerate reduce debt and strengthen the social media company’s presence in its largest market, especially for its Whats App unit.
Jio launched JioMart on 25th may soon after the Facebook deal. The e-commerce venture, which used Facebook’s popular WhatsApp as the interface, has had some teething troubles, although investors seem enthused about the long-term prospects of the venture. Besides, Jio has already acquired a number of firms such as the music streaming company Saavn and education technology firm Embibe, raising hopes of the creation of a superapp.
Beyond the wireless and mobile opportunity, there is this large opportunity that is potentially possible and as the ecosystem develops and they build the entire monetization across the platform and across the e-commerce market where they are working with the kirana stores on the JioMart opportunity, If they can penetrate to a large extent and digitize all of these kirana stores and build the JioMart platform in a big way, one could anticipate that the entire Jio platforms ex telecom could also be a fairly significant part of the entire revenue potential.
Jio could leverage or bundle WhatsApp for Business to its retailers, with an end-to-end service, unlike now, where they have to go to via Facebook and other third-party companies.It could also give Jio a chance of monetizing its 360-million strong subscriber base, and Facebook and the marketers and publishers on its platform, willing to pay to access Jio’s user base. Jio hasn’t been able to monetize its users till now, but this repositioning seems to be an opportunity for the same.
The $5.7 billion Facebook-Reliance Jio deal was scrutinized by Competition Commission of India (CCI), mainly from the data advantage point of view and not just money or market share as access to data is an interesting aspect of this deal. These two companies are like two data elephants and the combined entity may end up killing all competition and distort fair market practices.Together the combined reach of Reliance Jio, Facebook and its messaging app WhatsApp would provide undue advantage against rivals, be it other technology giants like Google and Amazon or even local startups.
However, no data sharing in this deal hence, CCI has approved investments. It can however take suo motu action if it sees cartelization or if there is a complaint that a company or grouping has higher concentration of market power.
5G ecosystem in India
An incremental cash coming into Jio would boost the telco’s balance sheet & Reduced its dependence on an initial public offer (IPO) for future cash infusions. This will help it renew its 850 MHz holdings and also buy 5G spectrum and will give it a first-mover advantage over rivals Bharti Airtel and Vodafone Idea in aggressively buying 5G airwaves in the next sale.
Jio will play a key role in the development of the 5G ecosystem in India, with its 5G-ready network and extensive fiber assets based on market dynamics. Jio’s success as a digital company would hinge on its app ecosystem gaining traction and monetization of its cluster of over 25 apps, noting that MyJio App could emerge as a Super app to consumer services that Jio ventures to provide.
Reliance has been successful in executing the tel-co piece of Jio, technology capabilities and It will be interesting to see RIL delivering to the promise through effective monetization considering so many angles of the case.
- While Reliance has been successful in the present telecommunication sector, RIL is now focusing on futuristic technologies & consumer preference change.
- By bringing on various investors onboard, Reliance Jio not strengthened its financial position but also strengthened its strategic positioning as a tech platform.
- Flexibility & Adaptability have performed has significant contribution for RIL to continue to be an industry leader which can be a takeaway even for startups.
- Trend-lines are not as important as change in the trend is the most important thing for any business. Mukesh Ambani led, RIL has been successful in capturing the recently changing consumer preferences & change in behavior trend repositioning itself as a digital platform, targeting through the various digital Platforms.
It will be interesting to see the digital era of telecom and internet with reliance Jio.