RIL is officially debt-free all thanks to the cash registers of Jio. Do you think this was already priced right from the time when the biggest deal with Facebook was signed?
Yes, the focus in the company as far as the investors are concerned has already shifted to what happens with Jio’s business now. I think there is a valuation benchmark that has been set by Facebook. Of course, the investments that are coming in, the net debt going to negligible levels is something that all of us have been broadly looking at. One needs to keep in mind that the Rs 53,000 crore rights issue that has been closed as well as the investments that have been closed, the cash has actually not flown in yet.
But given that these are firm commitments, it is just a question of timing and I think by November 2021, all of this cash will actually get into the company. So that is something that was broadly factored in. The focus will obviously shift now that the balance sheet is obviously almost entirely de-leveraged except for maybe some of the credit suppliers advances and spectrum liabilities which is just about Rs 60,000 crore. Other than that, obviously deleveraging is something that has been expected and is something that is broadly in the price to a certain extent given that everybody has raised their estimates of the Jio platform valuation based on the investments that have come in.
I think the bigger story or the bigger focus has to be that all of these global marquee investors have obviously paid an option value over and above what the business as it is today. If you really look at Jio’s business at this point of time, at the end of the day, 90% to 95% still comes from pure mobility. The option value, which is the critical issue of maybe Rs 1 lakh crore or Rs 1.5 lakh crore extra EV that has been paid by some of these investors is something that will be monetised only when the enterprise, the app ecosystem, the content and all the apps that they have created can actually be monetised. I think that will be interesting monitorable over the next couple of years to see how Reliance Jio achieves that and what sort of real uptick we can see from the earnings of this business.
I just want to understand where we will now be seeing the next trigger for RIL share price?
I think we are being a tad harsh on Reliance and we are saying that retail will be the next thing to breakout. We do really look at the performance of the retail business. The EBITDA from this business has gone from Rs 2,500 crore to almost Rs 10,000 crore for FY20. So I would say that some part of the success story is already in place. Obviously their ambitions to get this business to a different trajectory makes it much larger; may be an even double the EBITDA from these levels and make it a Rs 25,000 crore EBITDA business on the lines of what the individual energy verticals do today say refining or even petchem. So there is still a fair way to go.
As far as digital is concerned, the mobility business is the one that has created scale and has established itself and the numbers are there for all of us to see and that is something that is established. What these investments have today paid for is the option value of the entire ecosystem they have created outside of mobility and I think the monetisation of that and translation of this promise into actual numbers will be keenly watched over the next two to three years.
If you look at Reliance as a company there are three legs to it: one is of course earnings performance, second is balance sheet quality and third is the growth prospects. So earnings performance obviously remains in the top tier and my sense is that with downstream also likely to start to come back from the second half of FY21, as refining demand supply stabilises and the overhang even in petchem oversupply starts to dissipate, maybe by the last quarter of this year, downstream will come back.
Jio continues to be strong as we have seen and I think there is a lot of ARPU improvement which should start to come. The lag that exists in Jio’s ARPUs, our sense is because of the way their subscription works, those will flow through at a slower pace and therefore ARPU will also strengthen over the second half. Balance sheet obviously will be started with that discussion and quality has already improved manifold. I think that is something that is taken for granted now that this will be a much more asset light model as a company but the other thing is that in terms of longer term growth prospect, there are several things to monitor and several things that we really do not know much about.
They have the ecosystem in place. They have a full-fledged enterprise business, the infrastructure in place and they have an FTTH infrastructure in place. Of course all the apps and start-ups and the digital content they have built up but as of now nobody is really paying for it. I think that is one critical monitorable. As and when people start to really pay for a let us say about the premium section of the apps or they figure out a way to pay for these things, that will still be an interesting driver.
if(geolocation&&geolocation!=5&&(typeof skip=='undefined'||typeof skip.fbevents=='undefined')) !function(f,b,e,v,n,t,s) if(f.fbq)return;n=f.fbq=function()n.callMethod?n.callMethod.apply(n,arguments):n.queue.push(arguments);if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version='2.0';n.queue=;t=b.createElement(e);t.async=!0;t.src=v;s=b.getElementsByTagName(e);s.parentNode.insertBefore(t,s)(window,document,'script','https://connect.facebook.net/en_US/fbevents.js');fbq('init','338698809636220');fbq('track','PageView');