-Aakash Samanta(Class of 2021, IBS Hyderabad)
Biggest FDI Deal in the Indian Technological Sector
On 23rd April 2020, the Indian technological sector witnessed a ray of opportunity when the US Based popular social media site “Facebook” invested in the Reliance Jio. Reliance industry showed a bullish trend on the same day as it zoomed over 9% following this announcement. This Foreign direct investment gives the positive signs of recovery in the telecom sector as it is one of the biggest FDI till date, making the founder of Reliance Mukesh Ambani the richest man of Asia. Facebook bought 9.9% stake in the Reliance Jio for Rs 43,574 crores making it a minority stakeholder in the terms of investment valuation. This deal had made Jio the 5th largest in the terms of Market Capitalization. Reliance Jio is currently the market leader in terms of the revenue as well as the market share of 40% in the Indian Telecom Industry.
JPL ( Jio platforms Ltd) was created as a subsidiary for RIL in October 2019 last year to bring all the business under one roof, which includes applications like Jio Saavan, Jio News, My Jio, Jio TV, etc. Jio reported a standalone revenue from operations, including excess revenues of Rs 13,968 crore in Q3, up 28 percent compared to the same period last year. The EBITDA reported was Rs 5,601 crore, up 38 percent. The net profit is 62.5 percent higher, with Rs 1,350 crore. The JPL is targeting to become one of the debt-free company by 2021, like Alibaba and Google.
Why this deal happened?
Founder of Facebook, Mark Zuckerberg believes that India is home for over million subscribers for facebook and Whatsapp, he also believes the fact that Jio has connected 400 million subscribers in Indian telecom industry.
The current deal mainly gives rise to the following outcomes:
- As 75% of the $1.2 trillion retail market in India is still under the traditional method of sales ,this deal can give a huge relief to the small scale industries in many factors like, they will be brought under a new platform called Jio Mart launched on December 2019 to scale up the benefits and convenience for their customers. By this way Jio gets a digital marketing channel to promote its digital services in Facebook and Whatsapp. This deal is an opportunity for boosting up the e-commerce sites in India to provide the necessary goods in the market, amidst COVID-19 pandemic and giving competition to the major players like Amazon, BigBasket and etc.
- $5.7 billion spent by Facebook for buying 9.9% of shares in Reliance Industries’ looks to leverage its popular WhatsApp messenger to offer digital payment services to small grocery stores in India in competition with payment services like GooglePay, Paytm etc.
- As of December 2019, the net debt stood at Rs 1,531 Billion. Reliance is interested for this deal is that they want to be the net-debt free company by early 2021. JPL is expected to retain Rs 15,000 crore, while the rest of the amount will be used by RIL to lower debt by redeeming the optionally convertible preference shares it holds.
- As Reliance Jio has huge subscriber base in the country with 400 million plus users, it is going to give Facebook and whatsapp a platform for the communication and would like to surpass China’s WeChat services. Customers need to add JioMart’s WhatsApp number 88500 08000 on their phones to order from Jio Mart. On sending a message to Jio Mart, the customers would be asked to enter the details and they can shop the essential goods. Currently Jio Mart is currently available on cities like Thane, Kalyan and Navi Mumbai.
- After the crypto currency is set to be legalized, in India the Mega Jio-FB deal can show a path for the growth of digital Crypto-currency in India and as Facebook assembled a group of companies to create a currency known as Libra could set a milestone, as Reliance Jio had pledged to develop the biggest blockchain network in the world. This was announced in August 2019 in Annual General Meeting.
- WhatsApp platform, through its commercial agreement with JioMart, could provide deeper and richer data to Facebook, by more intense and insight into the consumption patterns of Indian customers. This could give Facebook a new base on Indian consumers. More importantly though, it could enhance the way for Reliance in terms of monetizing Jio’s huge subscriber base.
However, this deal could raise to threat the other players in telecom market like Bharati Airtel and Vodafone as they have to accelerate the digital expansion and Jio will bolster its position in the company’s balance sheet.
How it can create opportunities for Indian Technological Sector?
- This will be the single largest investment in the telecom sector.
- This could create a wider market for 30 million small or middle-class merchants in the market.
- This deal will provide the employment in the telecom sector of the company.
- Deal will connect farmers and give them the boost in the retail sector.
- Whatsapp base will be increasingly used for digital transaction and will be in the fingertips.
References
https://economictimes.indiatimes.com/tech/internet/facebook-buys-9-99-stake-in-reliance-jio-for-5-7-billion/articleshow/75283735.cms
https://www.livemint.com/companies/news/facebook-jio-deal-could-pave-way-for-cryptocurrencies-in-india-11587897379004.html
https://economictimes.indiatimes.com/blogs/et-editorials/the-reliance-jio-facebook-deal/
https://thewire.in/business/four-reasons-why-facebook-is-buying-a-nearly-10-stake-in-mukesh-ambanis-reliance-jio
https://www.livemint.com/companies/news/jiomart-gets-a-whatsapp-number-goes-live-11587830909415.html
bipasha1904
Great work…. way to go SHODH… club prayaas is doing an amazing job… thanks for all the insightful reflection on the on goings in the world
Prayaas_IBS
Thank you so much Bipasha!