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A man speaks on a mobile phone in front of a Reliance Jio store, the mobile network of Reliance Industries Ltd., in Mumbai, India on Sunday, January 19, 2020.
Dhiraj Singh / Bloomberg
Times are tough in India, with Covid-19 still spreading and the economy slipping from giant to recession. That hasn’t stopped its main mobile provider, Jio Platforms, from emerging as a global tech superstar.
Google’s parent company Alphabet (ticker: GOOG) announced on July 15 that it would spend $ 4.5 billion for 7.7% of Jio. That limits, for now, a $ 20 billion investment path that has also included Facebook (FB) and A-list private equity players KKR (KKR) and Silver Lake Partners.
The $ 20 billion is about what Jio spent building India’s first 4G network and bankrupting its low-priced competitors. You are now ready to become an ATM, fans argue. Only one serious rival, Bharti Airtel (532454: India), continues to milk a market of 700 billion and continues to grow, where the average monthly income per user is destined to rise from the miserable $ 2. The figure for China is north of $ 15, says Aditya Kapoor, portfolio manager of the Ivy Emerging Markets Equity fund. A third-party provider, Vodafone IDEA (532822.India) continues to operate, but “on the verge”.
“There is no other place in the world where you can find a cell duopoly,” says Kapoor. “This is a long-lasting and very profitable business.”
As indicated by the “Platforms” in its title, Jio’s ambitions go far beyond providing a network. It is engulfing new providers of online education, healthcare and music, and building its own financial services. He’s also building phones starting at $ 50, which Google presumably wants to make sure runs on Android. All of that adds up to an inside track on the planet’s still-virgin strip of real estate on the planet, says Venkat Pasupuleti, co-portfolio manager for India at Dalton Investments. “India is one of the few markets where the battle of electronic commerce has not yet been won,” he says.
Two key reservations spring to mind in Jio. First, ordinary mortals cannot buy the shares of the phenomenon. It is a subsidiary of Reliance Industries (500325: India), a family conglomerate most famous, until recently, for oil and petrochemicals. The chaebol plans a split three years from now. Second, father and son have become much more expensive lately. Reliance shares have gained 37% so far this year. The Alphabet purchase values Jio only at $ 58 billion, a third more than the Vodafone Group (VOD), which topped $ 50 billion in revenue last year.
However, investors’ eyes are not yet filled with tears over valuations. “Google is paying about 8 times EBITDA, which I wouldn’t say is out of place for that kind of growth,” says Dave Heger, senior technology analyst at Edward Jones.
Being part of Reliance also has benefits, as the conglomerate has a voraciously growing brick and mortar retail division that could generate synergies with Jio’s online capabilities, Pasupuleti says. Particularly interesting for Facebook may be a project to unite millions of Indian mom and pop stores in a Reliance-managed wholesale network and improve their customer interactions through Facebook-owned WhatsApp.
Confidence and Jio are gaining an aura of invincibility in Asian financial capitals, Pasupuleti argues. “People have seen with Alibaba Group Holding (BABA) and Tencent Holdings (700.HK) that selling them at any price was a mistake,” he says, referring to China’s online twin giants. “Jio is going through a similar transformation.”
As he does so, he is becoming a national icon for a nation that needs something to cheer on. “As an Indian citizen, I am terribly proud of what they have done,” says Kapoor. You can’t quantify such a feeling, but it surely is valuable.
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