[AMG Power]

Q: How do you value a 3 year old debt ridden, loss making company with bad service?

A: You value it more than Infosys, HDFC, ITC and..wait for it...even more than India's largest bank SBI

https://www.businessinsider.in/busin...campaign=cppst

[v1p3r]

Originally Posted by digitalnirvana

This is a win win for Facebook and Jio. ...
Must say MDA has got this deal spot on. He is a true visionary.

Pretty much spot on. He's managed to ease off on the debt considerations, got a solid technical partner. It's very clear who the deal maker is here - you don't often find the owner of a $500 bn company thanking someone for accepting a 10% investment! Any competition / political compulsions that Whatsapp was facing with its payments service will now melt away - in a happy coincidence NPCI rolled back the 33% single-entity cap on market share that they had put in place recently. Facebook's revenue in India has typically been a rounding error in their overall performance, even though they have hundreds of millions of users here. MZ is going to expect that to change.

Originally Posted by safari_lover

At the risk of sounding jingoistic, I find it odd (disappointing even) that even large corporate houses like Reliance cannot sustain without money from overseas. Can't they raise the capital internally.

Make of it what you will but It looks like all our telecom and entertainment companies (all consumer facing), will soon be owned by foreigners.

All your user data already rests in the hands of foreign companies, including ones in which the Chinese govt and army have significant say. The simple answer is that no one cares. India has no capital at this level - at most we can hope to attract investment.

[AMG Power]

Originally Posted by rrsteer

But I still am unable to comprehend the need for Jio to sell a stake to FB for this purpose.

It's got nothing to do with access to data or kirana stores or even Whatsapp payments. That's what is fed to the media to satisfy the gullible amongst us. No one would pay this amount of money for a debt ridden, loss making, badly run company for those so called "benefits".

FB wants a large slice of India's business and has a lot of new initiatives in the future which it knows will get scuttled if it doesn't have the right connections into the power that be. There is someone who has the right connections and has offered to leverage those connections for FB's benefit on certain terms.

The fact that FB agreed to those terms is an indication of what happens when you have a lot of money but rely heavily on advisors more than your own decision making ability, knowledge or experience. Zuckerberg is primarily a techie who has floated a very successful tech company and made a lot of money. That doesn't necessarily make him the right person to do global business in this league but for an ability to sign large cheques.

But to his credit, it must be said that he can also afford to write this amount off should something go wrong.

[AMG Power]

There's a general feeling that if a deal is large it's got to be great. Human tendency when a large deal happens is to overlook the obviously glaring anomalies in favour of some far fetched hype to give an impression that one understands these large deals and the mechanics involved therein.

Here's a comparison between the Jio valuation and the best in India: (rounded off to the nearest 000 for readability)

SBI - Rs.165000 crores (consistently profitable - valued 2.5 times smaller than Jio)

ITC - Rs.223000 crores (consistently profitable)

Infosys - Rs.272000 crores (consistently profitable)

HDFC - Rs.289000 crores (consistently profitable)

Jio - Rs.440000 crores (consistently loss making, debt ridden company, just 3 years old)



Image Source: BI

[Samurai]

Originally Posted by AMG Power

Here's a comparison between the Jio valuation and the best in India: (rounded off to the nearest 000 for readability)

SBI - Rs.165000 crores (consistently profitable - valued 2.5 times smaller than Jio)

ITC - Rs.223000 crores (consistently profitable)

Infosys - Rs.272000 crores (consistently profitable)

HDFC - Rs.289000 crores (consistently profitable)

Jio - Rs.440000 crores (consistently loss making, debt ridden company, just 3 years old)

Attachment 1997506

Image Source: BI

This is an ongoing saga since 25 years, and I have never understood it. When a large IT company is considered, Infosys gets picked and TCS is ignored. TCS was always had more revenues than Infosys, practically every year. In your above example, had you considered TCS with a market cap of Rs.703000 crores, it would have dwarfed everything. But no, TCS gets ignored again. Sorry, as a former TCSer, I had to rant.

[AMG Power]

Originally Posted by Samurai

Sorry, as a former TCSer, I had to rant.

You can rest assured it's nothing personal..

[amitk26]

Question should not be about quantum of debt but how and what for the debt is utilized.

JIO used debt to build networks from scratch hired thousands of engineers in core R&D and bought companies Which no other operator in India had done. Vodafone Europe used today o maintain standardisation teams and applications development teams, however, Vodafone India and Airtel were touting frugal lean model with minimal services. Airtel was even outsourcing operations to Erricson. And then JIO came and disrupted the market.

AFAIK they did a lot of content deals as well

Mind it FB investment is in application business called JIo platforms and valuation is based on the potential of that.

In this era when companies like Swiggy , Uber or Zomato get valuation purely based on the number of customers acquired. There is no reason JIO should not be valued similarly they have dwarfed growth of all these VC funded companies.

Also JIO has higher ARPU than other operators and they have pushed average ARPU values for industry higher.

I see no reason for comparing JIO with hokey stick growth curve with SBI etc.
If you are comparing it with TCS or Infosys how many actual Products or Service platforms have built like JIO Pay or JIO Cinema or RCS service or IOT devices, building management , security etc ?

Lets say if PhonePe can be valued 1 billion US$ I see no reason why similar valuation should not be given to JIOpay. Now you combine each such service/ application in JIO Application bouquet and give some premium for userbase and opportunity cost and then FB valuation for 9.99% stake makes sense.

Just because they had inhouse seed money ( Ambani gave seed money and raised debt using the backing of Reliance ) and most people here hate big business doesn't mean the value they created is less compared to companies who raise money from some external capitalist like Jack Ma or Masayoshi Son.

Originally Posted by AMG Power

Q: How do you value a 3 year old debt ridden, loss making company with bad service?

A: You value it more than Infosys, HDFC, ITC and..wait for it...even more than India's largest bank SBI

https://www.businessinsider.in/busin...campaign=cppst

[safari_lover]

Originally Posted by v1p3r

All your user data already rests in the hands of foreign companies, including ones in which the Chinese govt and army have significant say. The simple answer is that no one cares. India has no capital at this level - at most we can hope to attract investment.

My point was not about user data. That anyways is a lost cause. One can only hope to minimize the exposure by choosing what to post/keep on the web cloud.
Telecom and Entertainment companies have direct control over what consumers can access and watch. And currently most of this control is with foreign companies, which is a little disconcerting.

[v1p3r]

Originally Posted by amitk26

Just because they had inhouse seed money ( Ambani gave seed money and raised debt using the backing of Reliance ) and most people here hate big business doesn't mean the value they created is less compared to companies who raise money from some external capitalist like Jack Ma or Masayoshi Son.

You've made some very good points. Jio is heavily infrastructure driven as well, including owning India's second-largest number of towers. They are also the owner of possibly the largest data lake in Asia, outside China. They own the infra, the pipeline, the data (content), all analytics built on it. This is scalable on a level that TCS / Infy / ITC can't even dream of. In the case of banks, the corollary would be to have an entity that is the RBI, SBI, and the government mint.

Originally Posted by safari_lover

My point was not about user data. That anyways is a lost cause. One can only hope to minimize the exposure by choosing what to post/keep on the web cloud.
Telecom and Entertainment companies have direct control over what consumers can access and watch. And currently most of this control is with foreign companies, which is a little disconcerting.

Telecom - not sure if it can be majority owned, in which case 'control' as defined legally may not be foreign. Entertainment - not sure. Choosing what to show is less useful, but understanding what people are actually watching - user data - is invaluable.

Honestly, there is no capital in India to fulfill these sort of requirements. Indian institutional equity investors don't think long term, and after the crony capitalism NPA fiasco, banks don't move a muscle.

[fordday]

Originally Posted by v1p3r

in a happy coincidence NPCI rolled back the 33% single-entity cap on market share that they had put in place recently. Facebook's revenue in India has typically been a rounding error in their overall performance, even though they have hundreds of millions of users here. MZ is going to expect that to change.

Did NPCI issue the roll back order? I could not find it. Can you share any official links if you have?
Wonder why we had such a rule in the first place. It could be when our deshbhakt companies like Paytm (with their chinese funding) were using all their connections and opposing tooth and nail outsiders like GPay and WhatsApp Pay, who wanted to be in the payment space.

Originally Posted by AMG Power

FB wants a large slice of India's business and has a lot of new initiatives in the future which it knows will get scuttled if it doesn't have the right connections into the power that be. There is someone who has the right connections and has offered to leverage those connections for FB's benefit on certain terms.

But to his credit, it must be said that he can also afford to write this amount off should something go wrong.

I wouldn't be surprised if it comes out tomorrow that govt put all kinds of roadblocks for FB initiatives on orders that someone.
FB pours in the money and all get to get their share and alls well that ends well.

[AMG Power]

Originally Posted by amitk26

I see no reason for comparing JIO with hokey stick growth curve with SBI etc.
If you are comparing it with TCS or Infosys how many actual Products or Service platforms have built like JIO Pay or JIO Cinema or RCS service or IOT devices, building management , security etc ?

Why talk only about the products or service platforms of Jio? Talk about the real revenue or profits of Jio and then compare. What is the revenue generated by JIO Pay? What is the revenue generated by JIO CInema? What is the revenue generated by RCS services?

Obviously not enough to even pay the bills as JIO has been consistently loss making. Of course they have a lot of hype about the revenue they may generate in the future. That hype is what VC's trade on and such trading helps to pay the bills of VC's - not that of the company. Remember VC valuation is hype and not revenue in the books.

Infosys, TCS or SBI have real revenue and profits and not some hyped up imaginary potential sometime in the future. All this hype of owning the largest data content is just that - hype until it is converted to revenue in the books not through an investment by a VC. VC's will find value in that because they trade on hype and not real revenue having exhausted opportunities of trading on companies that give you real revenue.

Uber has probably amongst the highest number of customers and this has given it very high valuations but take a look at the bottom line - it is the largest loss making company in the world.

The story is not going to be different with Jio either.

[rrsteer]

Originally Posted by AMG Power

FB wants a large slice of India's business and has a lot of new initiatives in the future which it knows will get scuttled if it doesn't have the right connections into the power that be. There is someone who has the right connections and has offered to leverage those connections for FB's benefit on certain terms.

This makes sense and am inclined to go with this line of thinking. Would be worth reading analyst reports that follow FB as to what their opinion is.

Originally Posted by amitk26

Question should not be about quantum of debt but how and what for the debt is utilized.

JIO used debt to build networks from scratch hired thousands of engineers in core R&D and bought companies
Just because they had inhouse seed money ( Ambani gave seed money and raised debt using the backing of Reliance ) and most people here hate big business doesn't mean the value they created is less compared to companies who raise money from some external capitalist like Jack Ma or Masayoshi Son.

In addition, the debt was used to price out the competition and generally bleed the industry. A strategy that only Reliance can and will execute in India.
Seed money is a term used for investment used to help incubate a new technology or a new practice of realizing value through application of existing technology. Jio is not a case of seed investment.
Having said that it still needed great execution to bring all sorts of strengths to accomplish what Jio did. In that sense its a trailblazer.

[v1p3r]

Originally Posted by fordday

Did NPCI issue the roll back order? I could not find it. Can you share any official links if you have?
Wonder why we had such a rule in the first place. It could be when our deshbhakt companies like Paytm (with their chinese funding) were using all their connections and opposing tooth and nail outsiders like GPay and WhatsApp Pay, who wanted to be in the payment space.

No official notification yet - this is the news item. https://entrackr.com/2020/04/exclusi...arty-upi-apps/ Entrackr's record is pretty good. I have some knowledge of this space, and yes the 'roadblocks' were put in by 'someone' who anticipated this turn of events.

[amitk26]

Originally Posted by AMG Power

Why talk only about the products or service platforms of Jio?

Because that is what FB has invested in. Please check media briefings again FB did not purchase 9.9% of JIO but FB acquired 9.9% of
JIO platforms . All the applications developed by JIO or brought by JIO will be under this umbrella of JIO Platform

They announced the creation of a 15 billion $ entity earlier
https://gadgets.ndtv.com/telecom/new...o-debt-2122938

So henceforth we should discuss this entity instead of JIO the telecom operator

As anyone can see RIL will split the JIO into multiple companies before bringing IPO to unlock the value.

About why FB should pay this much let's say if FB wanted to acquire a Payment company ( say PhonePe) in India roughly they might have to spend a couple of B $, here in JIO platforms they are buying 10% of a company which has a big customer base for payments, music and media streaming, Cloud Service ( JIO Cloud), Digital TV, News etc

Over and above it could be a bet for future just like Yahoo invested in Alibaba in early days. When Yahoo went belly up only worthwhile asset was the stake in Alibaba. Yahoo in its heydays was as formidable as Facebook is today.

Originally Posted by AMG Power

Talk about the real revenue or profits of Jio and then compare. What is the revenue generated by JIO Pay? What is the revenue generated by JIO CInema? What is the revenue generated by RCS services?

Valuations are done based on peer comparisons and opportunity costs. I think FBs and Walmarts of the world who are sinking billions in companies like JIO Platform or FlipKart ( Wallmart) know better why they are doing so and they are speaking through $$.

If suppose stock valuations were to be done based on revenues and P/L. All companies like OLA, PhonePe, Zomato, Swiggy and so many ecom portals should have zero value. Wallmart shouldn't have brought out Flipkart. None of them was profitable and the average cost to acquire a customer is 1000+ rs for each of them.
I am not bringing in real revenue of JIO as telecom operator because as I said earlier that is not what got sold to FB.

By the way, JIO is not 3 years old as you have been saying Ambani started the company around 2010. Around 2011-12 they got 15 billion $ loan from Samsung and chose Samsung Network for LTE core network and Cisco for the backbone. For good 5 years they were in the prelaunch stage which is unprecedented.

Originally Posted by rrsteer

Seed money is a term used for investment used to help incubate a new technology or a new practice of realizing value through application of existing technology. Jio is not a case of seed investment

If Spotify or PhonePe can be an example of seed investment what's wrong with their JIO Counterparts?
If Flipkarts and Olas can qualify to be tech companies JIO has at least 100x of technologies with them.
Today they have best network management tools built in house and also technologies for scalable media deployment and for this they acquired few companies across the globe. As an operator they can not sell this to other operators however by floating dedicated subsidiaries they can sell the digital assets created.

Someone talked about TCS and Infosys they are service companies so not directly comparable but one measure they used to show value is qualified people they have in my estimate today biggest pool of app developers, 4G/5G engineers is with JIO.

PS: I have visited their campus as an employee of a vendor company and seen how they differ from other Indian operators and more organised like AT&T of bygone era or T Mobile / Sprint of today in the USA.

[wheelguy]

Well, Facebook not only gets access to the suite of applications on Jio Platforms Ltd but also to the companies in which Jio Platforms had invested into, also note that Jio is not just limited to Indian geography, it entered into Europe(Jio Estonia OÜ) and is eyeing to expand worldwide. It's a win-win move for both Facebook and Reliance.