Facebook buy in Jio to leverage WhatsApp for transactions between consumer and kirana store
The equity stake acquisition by Facebook in Reliance Jio will entail leveraging the messenger platform to facilitate new commerce transactions between a consumer and a kirana store.
According to a report by Credit Suisse, the transaction includes leveraging WhatsApp for New Commerce initiative. The announcement includes commencement of a partnership among JioMart (platform of RIL's New Commerce initiative), Reliance Retail and WhatsApp.
Currently, New Commerce is under purview of Reliance Retail and outside of Jio Platforms. The partnership will entail leveraging the messenger platform to facilitate New Commerce transactions between a consumer and a kirana store.
Credit Suisse said the deal will aid in achieving net debt free by March-2021. As of December 31, 2019, net debt for the group stands at Rs 1,531 billion and with Facebook's investment, this should put RIL on course to be net debt free by March-2021.
CS said the Facebook investment will accelerate Jio's digital monetization drive. RIL had restructured its digital business into one consolidated wholly owned subsidiary - Jio Platforms - which would host all the digital initiatives of the firm, including (a) Jio digital services (mobile, broadband), (b) apps, (c) tech capabilities (AI, Big Data, IoT, etc.) and (d) investments (like Den, Hathway, etc.).
Facebook's investment into this entity will further RIL's digital initiatives.
In a report, Bersntein said that Reliance and Facebook plans to integrate JioMart with WhatsApp. FB has already launched WhatsApp as customer service/social commerce tool in India allowing brands and retails to talk directly to customers/prospects, this can strengthen that offering both for 60M small merchants on JioMart but also for Reliance Jio itself.
The report said the partnership is strategic for both companies. The investment in Jio is one of the biggest investments FB can make. The transaction fits with their recent push to build themselves and experiment more and provides a closed network of 388 million users to test on, proof point around the already announced partnership to build and test a WeChat like app.
Reliance Industries has signed a binding agreement to sell 9.99 per cent of Jio to Facebook. Reliance will receive proceeds of $5.7 billion in cash from the transaction. Following the deal, FB will become the largest minority shareholder in Jio. A closing date has not yet been announced.
Bernstein said the transaction is based on a gross value of $65.95 billion which is in line. "We estimate Reliance Jio at $64 billion based on our DCF analysis," it said.
Bernstein said the downstream sell down (20 per cent) to Aramco for $15 billion remains under review. "With the collapse in oil prices, the risk is rising that the deal will not go has increased although we now value downstream at $55 billion gross which is a 20 per cent discount to Aramco valuation," it added.
It estimates that the balance sheet improves with the deal. "We estimate FY22 net gearing falls from 21 per cent to 15 per cent", it said.
In a research note, Citi said that the new commerce in retail could come into play. Concurrent with the investment, Jio Platforms, Reliance Retail, and WhatsApp have also entered into a commercial agreement to further Reliance Retail's new commerce venture JioMart (still at pilot stage) using WhatsApp and to support small businesses on WhatsApp.
As has been previously communicated, a key element of RIL's new commerce plans is to drive digitisation of mom-and-pop retailers (link).
While it is still early days, the broad reach that WhatsApp enjoys in India could help towards scaling up of this business, Citi said.