Facebook-Jio deal: A big bet on India’s digital landscape

• Facebook is investing US$ 5.7 billion in Jio
• A big bet on India’s growing digital ecosystem

On 21^st April, Facebook, Inc. announced an investment of US$ 5.7 billion (INR 43,574 Crore) in Reliance’s Jio Platform for a 9.99% stake in the company, becoming the largest minority shareholder in the digital and technology venture of Reliance Industries Limited. This is the largest ever FDI in technology space in India while also the biggest investment for a minority stake by a technology company anywhere around the globe.

Jio Platform is the holding company of Reliance Jio Infocomm (which runs Reliance’s phone and data unit) and various digital platforms such as JioMart, Jio-Saavn, JioCinema, Haptik and Radisys. After completion of deal, Facebook will get a seat on the board of Jio Platforms, along with that of an observer as per the Jio Platform. Jio Platform, Reliance Retail (retail division of Reliance) and WhatsApp (comes under Facebook), have also signed a commercial pact to cross-leverage e-commerce platform JioMart and WhatsApp. In fact, on 27^th April, after a few days of the deal, JioMart has gone live on WhatsApp for some areas of Mumbai and is soon going to be rolled out live in other cities.

India is strategically important for Facebook and is also the largest market with ~328 million monthly users. Moreover, WhatsApp which is subsidiary of Facebook, also has its largest customer base in India with ~400 million users. Reliance Jio Infocomm currently has nearly 388 million users, accounting for roughly half of the total mobile internet users in India. Though many businesses have been hurt during coronavirus pandemic, however, technology driven businesses are expected to be continue grow as increasing number of people are using digital services during the lockdown. Positively, in a country like India, where internet penetration has increased significantly over the last decade along with further opportunity for growth, businesses working in the domain continue to have room for expansion over the coming years. This keeps India on radar for many tech companies and Facebook is not an exception to the same. Facebook’s enormous bet on India could be seen from the fact that at least half a billion population still remain offline, wherein a sizable share can be potential Facebook users in the future. In this regard, being with one of the most valuable and important companies of India, Facebook could get help to gain deeper and greater local influence in the country’s market. Moreover, it may also help Facebook to leverage its WhatsApp pay-UPI platform with experiment for its Libra cryptocurrency services on a larger scale in India.

It is a win-win situation for Reliance (RIL) too. Facebook has valued the RIL subsidiary at whooping US$ 65.95 billion or INR ~4.6 lakh crore by buying 9.99% stake in Jio Platform. It is interesting to note that Reliance Industries Limited had a market capitalization of ~INR 7.8 lakh crore just before the deal. After the deal announcement, its market capitalization reached to more than INR 9 lakh crore as share price of RIL spiked more than 10%. With this deal, Jio Platform in itself is valued, in terms of market capitalization, amongst the top five listed companies in India by. RIL’s share price further extended gain on anticipation of healthy result from its telecom and digital business. As per fourth quarter result, which came after market hours on 30^th April (though RIL’s profit plunged 39% YoY basis due to an exceptional loss of INR 4,267 crore during the quarter), its telecom and digital business - Reliance Jio Infocomm has reported a 177.50 % YoY and 72.70 % QoQ growth in net profit as its subscriber base has reached to ~387.5 million now.

In the last annual meet, Reliance had announced to become debt free by 2021. It was also in talks with Saudi Aramco to sell a 20 per cent stake in its oil and gas business for about US$ 15 billion or INR 1,14,000 crore (see our previous blog here). Now out of INR 43,574 crore, which it will get from Facebook deal, nearly INR 15,000 crore will be retained by Jio Platforms while remaining will be used to redeem optionally convertible preference shares held by RIL in Jio Platform. Reliance had also announced its plans to restructure and consolidate its telecom and digital business with an aim to park digital assets in a debt free company like other giants in the space namely Alphabet Inc. or Tencent and to create larger digital ecosystem.  

Moreover, this deal will also amplify Reliance’s retail platform JioMart in the country. JioMart will now allow customers to place an order through WhatsApp by enabling millions of small offline businesses to go online where users can place order online but pay at stores thereby providing opportunity to access country’s mass customers base. As per Reliance, “In the very near future, JioMart, Jio’s digital new commerce platform, and WhatsApp, will empower nearly 3 crores small Indian kirana shops to digitally transact with every customer in their neighbourhood.” The main focus of the deal is to come up with digital-based solutions for 60 million micro, small and medium businesses (MSMEs), 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector.

In a nutshell, this mega deal will open more doors to Facebook to reach India’s massive customer base whilst  helping India’s largest conglomerate to move further in becoming a debt free company.