RIL gains 1% as KKR picks up 2.32% stake for Rs 11,367 cr in Jio Platforms

This transaction values Jio Platforms at an equity value of Rs 4.91 trillion and an enterprise value of Rs 5.16 trillion.
Shares of Reliance Industries (RIL) were trading firm, up 1 per cent at Rs 1,455 on the BSE on Friday in the early morning deals; after the company announced that investment firm KKR will invest Rs 11,367 crore in its wholly-owned subsidiary Jio Platforms. In comparison, the S&P BSE Sensex was down 0.53 per cent at 30,769 points.

This transaction values Jio Platforms at an equity value of Rs 4.91 trillion and an enterprise value of Rs 5.16 trillion. This is KKR’s largest investment in Asia and will translate into a 2.32 per cent equity stake in Jio Platforms on a fully diluted basis.

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Again, this deal showcases interest of global investors in Jio Platforms. Further, along with the previous four deals this deal could help RJio in realisation of its digital plans. Over the last month, leading technology investors, such as, Facebook, Silver Lake, Vista, General Atlantic and KKR have announced aggregate investments of Rs 78,562 crore into Jio Platforms.

Jio Platforms, a wholly-owned subsidiary of Reliance Industries, is a next-generation technology platform focused on providing high-quality and affordable digital services across India, with more than 388 million subscribers.

Brokerage firm Motilal Oswal Securities expects RJio to garner revenue/EBITDA CAGR of 22 per cent/44 per cent over FY20-22E along with healthy EBITDA margin expansion. Despite the price hike, the company witnessed lower-than-expected ARPU growth in 4QFY20, which was mainly due to longer validity recharge plans. Thus, the brokerage believes RJio would accrue full benefit of the price hike in FY21. Additionally, the favorable competitive landscape in the Indian telecom sector should offer healthy incremental EBITDA either through ARPU hikes or market share gains, it added.

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However, those at Macquarie had downgraded the stock to 'underperform' from 'neutral' in their May 19 report and slashed earnings estimates for FY21-22.

"Reliance has laid out broad aspirations to change its avatar from an energy company to a technology company of the same ilk as Amazon, Tencent, and Alibaba, and lead a digital transformation in India across any vertical imaginable. If successful, valuations matter less and RIL shares will likely further rerate towards Rs 2,000 related to the said optionality. With the stock back near pre-COVID levels and outperforming MSCI India by over 30% in the past year, in our ‘growth at reasonable price’ mindset we would take profit," wrote Aditya Suresh and Abhinil Dahiwale of Macquarie in the may 19 report.

Adding: "We downgrade our recommendation to Underperform from Neutral albeit with a modestly higher Rs 1,195 price target on lower net debt. We further cut earnings for FY21-22 by 16-10% and remain below consensus. We also reflect around $22 billion in recent transactions. Marginal buyer today needs to assume RIL can successfully morph from a best-in-class traditional energy company to a new-age tech company."

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