One is the largest social network in the world and also owns the largest messaging service. The other is the largest telecom company in a country, which is the world’s second largest smartphone market. Facebook is investing Rs 43,574 crore to pick up a 9.99 per cent stake in Jio Platforms, a wholly owned subsidiary of Reliance Industries, the oil to retail conglomerate.
Analysts reckon that this partnership will be beneficial to both the companies. Facebook, for instance, can leverage Jio Platforms’ user base of 380 million. Facebook messaging platform WhatsApp, which already has 400 million users, has been wanting to start a payments feature on its app. Jio and Facebook together could offer that and much more just like China’s WeChat.
Jio Platforms is a next-generation technology company, which will bring together Reliance Jio’s digital apps, digital ecosystems and high speed connectivity platform under one umbrella.
“Jio's partnership with Facebook could accelerate the transformation of the Reliance unit through the creation of a mega-apps like Tencent's WeChat, whose services include online money transfers and shopping,” said broking firm Anand Rathi.
Mukesh Ambani, the chairman of RIL, said on Wednesday that Jio’s new commerce platform JioMart and WhatsApp will empower nearly 3 crore small grocery stores in the country to digitally transact with every customer in their neighbourhood and this will happen “in the very near future.” Jio also aims to leverage its partnership with other stakeholders like farmers, medium and small enterprises, students and teachers and healthcare providers.
Over the last couple of years, Reliance has made several investments and acquisitions in the technology space, like music streaming app Saavn and artificial intelligence chatbot firm Haptik Infotech.
Last year, Jio and Microsoft had entered into a long-term alliance where by Jio will set up a network of large datacenters across India and Microsoft will bring its Azure cloud platform into Jio’s datacenters.
“Jio is gradually transforming from a telecom enterprise into an IT/Tech company with multiple emerging technologies, including artificial intelligence, Internet of Things, blockchain, virtual reality and cloud computing,” said Anand Rathi.
Over the last few months, a hightened price war led to crude oil prices tumbling. Now crude oil prices have crashed further as the world battles the coronavirus pandemic and many countries have announced nationwide lockdowns, which has reduced demand for oil. This is going to have a huge impact on RIL’s traditional oil and gas and refining businesses. So, in a way, this deal with Facebook and the expected digital push come at an opportune time for RIL and Ambani’s diversification is really expected to pay off.
“The deal between Facebook and Reliance is a positive for Reliance Industries coming under the current trying times. Reliance could use the proceeds of this transaction to cut its debt and overcome doubts about debt reduction process following the oil price crash and doubts over its deal with Saudi Aramco,” said Deepak Jasani, head of research at HDFC Securities.
At the end of the December 2019 quarter, RIL had a debt of Rs 3.06 lakh crore. In the annual general meeting in 2019, Mukesh Ambani had announced plans to reduce net debt to zero in 18 months. It has been in talks with Saudi Aramco to sell 20 per cent stake in the oil and chemicals business. RIL also sold 49 per cent stake in the petro-retailing business to British energy giant BP. This deal with Facebook will be another step in RIL’s direction to become debt free.
“The two can combine their unique strengths using their network of users, share their data, develop apps for social, digital payments, gaming, shopping, flight and hotel bookings, etc. The combination of WhatsApp expertise and user base, Jio’s vast subscriber base and Facebook’s deeply entrenched user base and technology is theoretically a win-win for all,” said Jasani.
Investors gave a big thumbs up to the deal, with RIL shares surging 10.30 per cent to close at Rs 1,363.35 on the BSE on Wednesday. The broader Sensex closed up 2.4 per cent.
“With the current global scenario post COVID-19, focus being on digital, it opens up huge business opportunities for both of the giants. It couldn’t have come at a more opportune time. And with India slated to have 900 million internet users in a few years, limitless potential opens up,” said Aamar Deo Singh, head of advisory at Angel Broking.
