The dynamics of the telecom industry in India are changing quickly. The series of investments in Reliance Jio has triggered various debates on the future of Reliance Jio and strategies employed by Mukesh Ambani – the richest man in India and the owner of RIL, the holding company of Jio Platforms.
While the global economy remains depressed in the wake of the coronavirus pandemic, Reliance Jio is garnering one after another investment. After Facebook and Silver Lake, now Vista Equity Partners have committed to investing Rs 11,367 crore in Jio Platforms for a 2.32% stake.
Overall, Reliance Jio Platforms has raised a whopping $8 billion (60,000 core rupees) in investment by selling nearly 13.5% stake so far in the last two weeks.
The sequence of development that was no less than a surprise for many leads us to question that needs to be asked here is – what exactly is the gameplan of Reliance Jio?
The Mounting Debt
Industry experts believe that one of the foremost explanations for Reliance Jio to be going on a stake selling spree so aggressively could be because of the debt burden that has been mounting up on Reliance Industries, aka RIL, due to the coronavirus pandemic. Just to put things in context, Reliance Jio Platforms is the whole owned subsidiary of RIL. Currently, RIL has a gross debt of over Rs 3 lakh crore and a net debt of Rs 1.5 lakh crore.
In August 2019, Mukesh Ambani declared that he planned to make Reliance Industries debt-free by 2021. However, because of government intervention and this sudden pandemic, his plans surely hit one too many roadblocks since the beginning of this year.
The Indian government petitioned a court to halt a proposed stake sales by Reliance Industries to Saudi Arabian Oil Co. After that, oil prices started declining severely along with a fall in global oil product demand as a result of the lockdown across India and multiple geographies. This, in turn, adversely affected Reliance’s petrochemicals front.
At the same time, Reliance’s retail vertical also took a massive hit as the demand for fashion and electronics slowed down as well. However, now several analysts believe that Ambani’s goal of making Reliance debt-free isn’t seeming very far fetched anymore because of these recent investments that came along Reliance Jio’s way.
The other factor that played a vital role in the decision of Mukesh Ambani to sell stakes of Jio Platform was the ongoing struggle to improve the ARPU – an important metrics that signifies the value worth of each customer. It is also quite an important element while evaluating a company’s valuation.
When Reliance Jio entered the telecommunications market in India, it had to significantly lowball its pricing for data and phone calls against its leading competitors such as Airtel and Vodafone to attract consumers. This, while helping Jio to gain a massive user base of 387.5 million, also led to a low ARPU.
As of FY Q3 2020, Reliance Jio’s ARPU stood at Rs 128.4 which was way less when compared to Bharti Airtel whose ARPU stood at Rs 135. Vodafone’s ARPU for F.Y 2020 Q3 stood at Rs 109 only but that is because it had to merge with another telecom operator Idea prior to two years after which it kept losing customers to other telecom rivals.
From Q1 FY’18 to Q2 FY’20 Jio ARPU continued to declined until the company decided to end the unlimited free calls offers to non-Jio network in a bid to improve ARPU. At the beginning of Q3 FY’20 the company started charging their customers additionally for all the calls they make to other networks.
Anyway, this clearly shows that Reliance, while surely outgrowing its competitors in terms of volume, is yet to do the same in terms of average revenue it makes from each user.
Now, with all these hefty investments that Reliance Jio Platforms has received, the company has finally gotten a big enough war chest to expand more aggressively, both its telecom offerings as well as its digital platforms. This, in turn, will surely spike up its ARPU within the year 2021 very easily.
The Biggest Digital Umbrella
These investments are definitely going to act as catalysts for fulfilling Mukesh Ambani’s vision for Reliance Jio. He has openly expressed his wish to create a digital-umbrella of products in every single category for India.
Almost all major industry specialists now believe that Jio’s digital initiatives to serve shopkeepers and small businesses across India has a tremendous scalable capacity. Jio Mart which is yet to witness a big roll-out can already be predicted to become very successful in the long-run as it is the perfect amalgamation of convenience between traditional shops or kiranas and new world supply chains. Also, now that it has tied up with with the social media and tech giant Facebook, Reliance can leverage technologies such as the Facebook-owned WhatsApp to bring in high-speed information and digital cash as well.
It should be noted that if Ambani can successfully achieve data nationalism via the Jio’s digital umbrella of products then it, as a technological hypermarket, might also be able to take on giants such as Amazon in India.
Robert F. Smith who is the Founder, Chairman and CEO of Vista, in a statement, has said that they (Vista Equity) believe in the huge potential of the ‘Digital Society’ that Jio aims to build for India under Mukesh Ambani’s vision and that they are very much thrilled to join this initiative to deliver exponential growth when it comes to connectivity all across the country
He also mentioned that together with Reliance Jio they are aiming to provide modern consumers and small business all the necessary digital tools to fuel the future of India which happens to be one of the world’s fastest-growing digital economies.
It’s quite evident that all the companies are quite optimistic about the enormous future success of Reliance Jio. On the other hand, Reliance Jio also needs to be self-sustaining as soon as possible to take on technology bigwigs likes of Amazon, Google and Microsoft, which have set their eyes on India to keep their growth intact, especially after the recent pandemic that has changed the dynamics completely.
Now it remains to be seen how exactly does Reliance Jio utilise all the massive wealth that it has acquired from selling stakes like hot cakes in this pandemic. We will keep you posted. Until then, stay tuned.