What makes Jio Platforms Ltd to command Rs 5 Lakh Crores valuation (with book value of Rs less than 5000 Crores) within 5 Months of incorporation.

Introduction:

Jio Platforms Limited controls Digital Services segment of Reliance Group which majorly consists of Reliance Jio Infocomm Limited (which is providing telecom service as ‘Reliance Jio’) and other companies. Investment made by investors is not into Reliance Jio Infocomm Limited directly, but into a group which contains Reliance Jio Infocomm Limited and other companies. This digital services group has earned (EBIT) Rs 14,363 Crores in FY 2019-20 which has accounted for around 20.53 % of group’s earnings. RIL has raised Rs 115,693.95 Crores by selling 24.70% stake in Jio Platforms Ltd in just 58 Days. These investments proved that networth of Jio Platforms are more than 5 Lakh Crores. Profits earned by this group are not in commensurate with the valuation (i.e., it takes around 35 years for the company to earn 5 Lakh Crores with same level of earnings of FY 2019-20 for the segment – ignoring time value of money). Details of investments into the company are pictographed below:

Market Capitalization of RIL group is around 11.4 Trillion. Value of Jio Platforms Ltd is around 45% of total group. This article explains why Jio Platforms is being valued at 5 Trillion despite minute profits.

Global Validated Value

Group & Product Structure:

Reliance Industries is having around 350 subsidiary companies and 20 Joint Ventures / Associates which makes the group structure complex. Jio Platforms Limited is having 14 subsidiaries, 5 Fellow subsidiaries & 1 Joint Venture of Holding Company which is explained below:

Jio Platforms Ltd.

From above structure, it is clear that investors will get benefits from not only Jio telecom services but also from other products of the group which are pictographed below:

Jio Platform

Jio Platforms has acquired / made investments in lot of startups & other companies like Jio Saavn, haptic etc.

Division’s Contribution to Group:

RIL group’s revenue has increased by 5.4% Year-On-Year (Y-O-Y) despite Petrochemicals & refining segment has shown negative growth. This is due to manifold increase in other segments like Organised Retail & Digital Services and others. Above information is tabulated below:

FY 2019-20 2019-20 2018-19 2018-19 Growth / Decline Growth / Decline
Segment Revenue EBIT Revenue EBIT Revenue EBIT
Refining 387,522 21,334 393,988 22,880 -2% -7%
Petrochemicals 145,264 25,547 172,065 32,394 -16% -21%
Oil and Gas 3,211 -1,407 5,005 -1,379 -36% 2%
Organised Retail 162,936 8,263 130,566 5,546 25% 49%
Digital Services 68,462 14,363 48,660 8,784 41% 64%
Financial Services 1,271 473 250 233 408% 103%
Others 42,463 2,721 22,151 1,225 92% 122%

Contribution of Digital Services segment to the group (for FY 2019-20) is explained below:

Particulars Digital Services (Cr) Growth Rate Group (Cr) Growth Rate % Share to Group
 Revenue             68,642  40.7% Y-O-Y    659,205 5.4% Y-O-Y 10.41%
 EBITDA             22,517  46.8% Y-O-Y    102,280 10.4% Y-O-Y 22.02%
 EBIT             14,363  63.5% Y-O-Y       69,950 4.8% Y-O-Y 20.53%

Digital Services segment has shown more than 40% growth in revenue & 60% growth in earnings. This explains that the segment is an important for the group. Brief summary of facts for all service products offered by RIL’s Digital Services segment explained below:

Wireless Telecom Industry:

Reliance Jio became a market leader in telecom industry with 35% market share and continuously increasing subscriber base. Jio has 387.5 Millions of subscribers as at Mar-20 with 81 Million net-additions during FY 2019-20. Market share along with rivals is explained below:

Subscriber Base - Wireless

Jio Ratio

Market share of the company has drastically increased because the company has provided services high speed data on account of huge investments from initial stage at free of cost. Average Revenue Per Customer is Rs 130.6 during the quarter ended March 2020. Investment, Gross Income & Profit After Tax for past 5 years is tabulated below:

(All amounts in Crores)

FY Total Investment in Assets Income PAT
2015-16 107,254 3 (16)
2016-17 179,338 1 (31)
2017-18 229,535 20,158 723
2018-19 175,700 38,844 2,964
2019-20 199,128 54,403 5,562

Following reasons further contributed for increase in Jio’s customer base & increase in revenue from the group:

* Jio uses latest technology and cloud computing for delivery which decouples revenue from the subscriber base

* Same customer is used for generating multiple revenues such as Telecom services & Jio Apps etc

* Heavy Capital Expenditure incurred (as stated above) has a linear revenue model so it does not offer much in terms of valuation & also it uses optic fiber network

* Direct jump to 4G services (rather shift from 2G/3G to 4G like other telecom service operators) resulted in cost-effective manner of conduct of business

* Technology & Equipments used by Jio are so sophisticated that shift from 4G to 5G will not require much capital expenditure

* Continuously increasing subscriber base accounts will help in achieving manifold increase in revenue & earnings * Telecom revolution which led to substantial reduction in number of competitors has helped in capturing the market easily.

Following data confirms increase in market share, usage of Jio:

* Jio’s 4G coverage at present is greater than 2G coverage in India with close to 99% population coverage

* Average per capita data consumption on Jio’s networks is 11.3 GB per month with potential upside from new use cases coming up every day

* Average voice consumption at 771 VoLTE minutes per user per month during the quarter ended March 2020

* Total wireless data consumption of 1,284 crore GBs (12.8 Exabytes) during the quarter ended March 2020 (one of the world’s largest mobile data networks)

* High user engagement with ~5 hours spent by each subscriber per day on the Jio ecosystem

Below picture describes growth in revenue, earnings & subscriber base:

Jio Performance

Broadband Service:

In less than 6 months of launching of services, Jio became biggest player in broadband industry in terms of subscriber base by backing other major players like Bharti Airtel, Vodafone & Idea etc. Below image confirms the same:

Continuous increase in market share has led to increased revenue & earnings. This will indirectly have impact on increasing stake in other products like Jio TV, Jio TV+, and Jio Browser etc.

Other Products of Digital Services Segment:

Details of other major products of digital services segment are tabulated below:

App Name Description Number of Downloads in GPS Alternatives / Rivals
Jio TV  680+ channels of live and catch-up TV, across 15 languages and 10 genres 100 Mn+ Airtel TV, Hotstar etc.
Jio TV+ / Cinema  video on demand, 10,000+ movies, 1,20,000+ episodes, 60,000+ music videos 50 Mn+ Amazon Prime, Netflix etc.
Jio News  190+ live channels, 800+ magazines, 10+ languages, 10 Mn+ Daily Hunt, Google News etc.
Jio Cloud  Secure cloud storage 10 Mn+ Microsoft OneDrive
Jio Security  Security App against Malware, Junk Clean etc 10 Mn+ AVG cleaner, Avast cleanup etc.
Jio Health Club  Virtual OPD & Inpatient Care Platform – virtual video consultation for physical, mental health 1 Mn+ Healthifyme
Jio Switch  Data Transfer App 10 Mn+ SHAREit
Jio Browser  Browser – Secured & Incognito, Desktop view & many more 10 Mn+ Google Chrome, UC Browser etc.
Jio Saavn  India #1 OTT music app with 55+ million tracks across 16 languages, unique Artist Originals Programme 100 Mn+ Gaana
Jio Meet  HD Video Conferencing App 10K+ Zoom Meetings
Jio Call  Voice, video calling app for smart phone 100 Mn+ other calling apps
Jio Chat  HD Video calling App 50 Mn+ other video calling & messaging apps

@ Further following apps / products will experience increase in market share, revenue amid Covid crisis:

# Jio TV

# Jio Cinema

# Jio Health Club

# Jio Meet etc.

@ Further, “Make In India” & “Boycott China Products” initiatives has led to increased demand to Jio’s products which are alternatives to Chinese Apps / products like:

* Jio Meet – Alternative for Zoom Meetings

* Jio Switch – Alternative for SHAREit etc.

Conclusion:

Increase in market share in all Digital Services segment has led to increased market share in markets like telecom industry, broadband & OTT platforms etc has led to valuation over and above valuation as per traditional methods based on earnings & revenue.

*****

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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