Why investors are flocking to infuse capital in Jio Platforms

Mukesh Ambani. Photo: Bloomberg

Mukesh Ambani, Asia’s richest man, shares a very remarkable trait with Jeff Bezos, the world’s richest man: They both love to do everything big, connect disparate markets with technology, and dominate them all.

That is what Bezos has been doing by building out Amazon, and that is what Ambani has been doing with Reliance Industries’ unit Jio Platforms. And now those two visions are set to go head to head in India, the world’s second-largest internet market.

Facebook’s purchase of a 9.9 per cent stake in Jio Platforms in April 2020 and the clutch of fundings that followed must be viewed through this lens. Ambani is bulking up his company’s financials for a massive foray into a market so far dominated by Amazon and Walmart’s Flipkart.

Besides Facebook, six funds, namely KKR, Vista Equity Partners, Mubadala Investment Company, General Atlantic, Abu Dhabi Investment Authority (ADIA) and Silver Lake, have announced investments in Jio Platforms (see chart below) over the last two months. All of them are counting on Reliance to replicate its success in the telecom space with Jio in retail.

Jio Platforms is a wholly-owned unit of Reliance Industries and owns the group’s digital businesses including Jio, Jio Pay and Jio Mart.

The investments go on to signal growing investor interest in the “integrated play of retail and telecom,” said Girish Vanvari, founder of tax advisory firm Transaction Square. “The ‘digital’ medium/industry has assumed greater significance in the post-COVID world, and it could be said the industry is poised to deliver exponential growth in the coming times,” he added.

Some of the above transactions, such as the one from Facebook, are about finding technology partners for an upcoming growth play. But others, such as the investment from Abu Dhabi’s sovereign fund Mubadala, are focused on reducing Reliance’s massive pile of debt.

The coronavirus pandemic has probably altered forever the way we live and work by forcing a lot of work and businesses online. Amazon’s online-offline business model had positioned it well to benefit when many other companies teetered on the brink of collapse when the pandemic struck.

Ambani is now uniquely placed to take advantage of the lockdown-induced changes in India, especially since Reliance Jio has over 370 million subscribers on its network, and Jio Mart, the group’s retail play, is getting ready to scale up.

“These deals augur very well for the Indian digital economy and the Digital India initiative. Given Jio’s significant consumer base, the digital platform would provide an opportunity to build digital commerce, digital entertainment, digital payments and would perhaps enable an integrated digital commerce platform for Indian consumers to transact on,” said Raja Lahiri, partner at assurance, tax and advisory firm Grant Thornton.

Ambani’s new ally Mark Zuckerberg will help him control some of the pieces he will need to succeed in his grand plan for Jio.

Whatsapp, owned by Facebook, is the most popular of all messaging platforms in India with 400 million users, and that could give the JioMart retail operation a significant advantage versus competition when Whatsapp’s payment service finally rolls out. Jio already has Jio Pay, but so does Amazon and Walmart’s Flipkart and they are all jostling for space in a crowded market.

WhatsApp Pay, if users adopt it like they have adopted Whatsapp messenger, could funnel millions of shoppers to Jio Mart, instantly taking a large chunk of business away from Amazon and Flipkart. “The retail platform could be linked with WhatsApp services, thereby giving Jio Mart a huge customer outreach given the huge number of users Jio, Whatsapp and Facebook have,” said Vanvari.

These alliances are not about prising open a new market but leveraging existing user relationships and scale to get a leg-up on the competition. India’s online commerce market was forecast to surpass $100 billion per year by 2022 before the pandemic struck.

Jio’s retail model tries to bring together small retailers and kirana shops and is more politically acceptable in India, especially against the backdrop of the coronavirus-induced downturn and job losses. It would, when its teething troubles are over, essentially help businesses serve local communities via JioMart, basically ploughing the money back into the local economies.

Worried by the online retail giants devastating small businesses, the Indian government had last year rolled out new rules that restricted online platforms from selling their own products, or of retailers they have invested in. Without that regulation, unbridled expansion by Amazon and Flipkart would have destroyed the small businesses and retailers in India. Jio has steered away from that political minefield right from the beginning, giving it goodwill among India’s political leadership. It can be expected to capitalise on that goodwill to overcome any regulatory hurdles to its own attempt to conquer the Indian online retail market.

But Reliance will have to tame some demons first. One is its pile of debt. Vanvari says Reliance Industries’ recent rights issue will provide about Rs 53,215 crore and the equity investments will provide about Rs 60,000 crore toward paying down the company debt. “The reduced level of debt may increase RIL’s ability to utilise cash for its growth,” he said.

Another question would be how well it can execute JioMart’s e-commerce model while keeping a control on quality and speed of delivery. Unlike in the case of Amazon’s sellers, the quality controls that can be placed over local businesses selling on JioMart would be limited. It remains to be seen how Reliance will be able to tackle this problem, which can have a direct impact on customer satisfaction — one of the critical reasons for Amazon’s success.

Another question that would hover over a Whatsapp-Reliance play for the Indian e-commerce customers is what will happen to Jio Pay. Will it continue to remain a competitor to Whatsapp Pay, which is expected to be crucial for the success of the retail operation. That is not an ideal situation for both companies.

Going forward, Vanvari expects Jio’s play for the Indian retail market to bring “exciting times for the customers and a competing environment for the big retail players, and the sector could see some degree of consolidation.”

Reliance fundraising spree puts pressure on Amazon, and Walmart, to manoeuvre to reduce Jio’s competitive advantage.

Recently Amazon made headlines for reportedly holding talks with mobile operator Bharti Airtel, Jio’s rival in India, for a proposed investment.

However, Airtel clarified that it is not looking at an equity investment from Amazon. But that may not be the end of the story. With many technology investors waiting to access the Indian market, we can expect more such deals in the days to come.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.