Face-Booked Jio

The hot news of the past few days, amid the COVID 19 pandemic, was the Acquisition of 9.9% stake in Reliance Jio, a unit of Reliance Industries Ltd (RIL), by the Social Media Giant, Facebook.

This certainly isn’t the first time Facebook has bought a stake in a company in India. Facebook owns a minority stake in an Indian social commerce company Meesho and an online education startup Unacademy.

Facebook has agreed to invest Rs 43,574 crore in Jio Platforms. This deal will help RIL to reduce debt and strengthen Facebook’s social media presence in its largest market, especially WhatsApp.

The transaction value of Jio Platforms is at Rs 4.62 lakh crore. Reliance Jio Infocomm, JioMart, Jio-Saavn and JioCinema operate under the parent company Reliance Platforms.

Mukesh Ambani on a video message the other day, said about the future plans of the Amalgamation, which opens up a huge chance for the Company’s presence into E-Commerce business through Jio-Mart. RIL and Facebook were discussing the possibility of creating a super-app by leveraging Jio’s reach and WhatsApp’s extensive presence. Jio Platforms, Reliance Retail and WhatsApp have also agreed to cross-leverage ecommerce platform JioMart and WhatsApp, to help both businesses grow.

WhatsApp being a popular social media platform now-a-days, may also be used as a support platform and experts are expecting a collaboration of both the platforms, maybe a Messenger helped shopping experience. Mr Ambani also said he’s looking forward to making over 3 crore small businessmen in India to enter into the Online trading platform.

However, WhatsApp and Jio will continue to operate as independent entities with their own business models. Both the companies will compete with each other where necessary, in accordance with the respective business models.

RIL said that the transaction is subject to regulatory and other customary approvals. Jio officials said that they are waiting for approval needed from the Competition Commission of India.

Reliance Industries is known for creating a huge market share, a kind of a Monopoly of its own, by providing services and facilities at substantially lower prices, using their advanced business strategies. They’ve done that at least twice in the telecom industry by introducing Mobile phones and plans at Rs 500 back in the early 2000s, which resulted in wide popularity of Mobiles, and lately, by introducing Jio, which made GB sized Internet consumption a daily thing. These strategies made the business tough for its competitors. The Jio-Facebook deal will be closely monitored by the anti-trust watchdog as both companies possess the private data of millions of Indians. This could give an exorbitant advantage to both the companies against rivals such as Google, Amazon or local startups, when both companies come together.

Jio launched three years ago by Mukesh Ambani, has grown at an exponential rate and is today the largest telecom company in India. About 388 million users which account to roughly half of the country’s internet mobile users use Jio. Facebook considers India as its largest market, as 328 million people use Facebook monthly and WhatsApp has around 400 million users in India.

In the year 2016, Mukesh Ambani invested around $40 billion for the purpose of launching Jio. By aggressive expansion into businesses such as e-commerce and grocery, Reliance Industries Ltd has become the biggest retail player in India.

Analysts say that, in a scenario where oil prices collapse, there exists a greater risk in the deal by RIL to sell a 20 % stake of the company to the Saudi Arabian Oil Company Saudi Aramco for $75 billion. RIL has also signed a deal to sell a stake in its telecom tower assets to Brookfield Asset Management, a Canadian private equity firm with the intention of becoming a net debt-free company.

RIL has a net group debt of Rs 1.53 lakh crore as of December 31, 2019, and the deal with Facebook will help bring down the debt. Jio could achieve the goal of becoming a net debt-free company by March 2021 with Facebook’s investment.

According to a recent report by Cisco, India is expected to have more than 900 million internet users owing to the increased availability of smartphones and internet plans that are affordable and cheaper.

CA Rajesh Menon
Chartered Accountant & Finance Professional
Logic School of Management