On 21 April, 2020, Facebook triggered a stampede to fill the glaring hole that had been growing and eating into virtually every Indian sector where technology was a disruptor. The name of that hole was Jio Platforms, an entity less than a year old, which was spun out of India’s largest conglomerate, Reliance Industries Ltd. Facebook’s $5.7 billion in Jio Platforms was rapidly followed by another 12 investments in rapid succession, adding up to over $20 billion. 

The hole that got filled had a new value. $65 billion was the value ascribed to Jio Platforms by the world’s largest technology companies and private equity funds.

Research firm CLSA extrapolated Jio Platforms’ valuation forward to March 2022, using estimates of its revenue growth. The value they came up with was $103 billion.

So far, so good. Perfect, even.

But the $65 billion (or $103 billion) stampede has also placed Jio Platforms and parent Reliance on the boundary separating contradictory investor sentiments. 

Undervalued versus overvalued. Low expectations versus high expectations. Vision versus execution. Addressable market versus cash flows. Disruptor versus incumbent. Promised versus delivered.

And of course, Reliance versus FAANG. Reliance’s stock price has gone up 4X and its valuation 3X since 2016. That has taken its implied valuations close to those of the world’s most successful tech giants like Facebook, Amazon, Apple, Netflix and Alphabet (Google). 

This is both what Reliance wanted and what it prophesied back in this slide from a presentation it made to analysts in October 2019, right after announcing Jio Platforms.

Never mind that 70% of its valuation traces back to its refining, petrochemicals and telecom businesses.

But FAANGs are valued so highly because they eat up markets, chew up competitors and spew out profits and cash flows. Jio Platforms’ $65 billion (or $103 billion) valuation is nothing but an expectation of its future cash flows.

The irony of great valuations is that they come with high expectations. That’s the cusp Reliance and Jio Platforms are on. 

On 27 July, brokerage and research firm Edelweiss Securities downgraded its recommendation on Reliance with a 70-page report. Its authors said that Reliance’s primary triggers had already played out, and that the pendulum had swung entirely from extreme pessimism to exuberance and infallible expectations on execution.

If the last three months were about Jio Platforms’ valuation catching up with four years of billions of dollars in investments and losses, the next four years would be about Jio Platforms’ execution trying to catch up with its lofty expectations.

Perhaps this is one reason why Reliance is already considering already considering Business Standard Reliance looks at Nasdaq listing for Jio Platforms; IPO likely by 2021 Read more a foreign listing for Jio Platforms as early as 2021.

AUTHOR

Rohin Dharmakumar

Rohin is co-founder and CEO at The Ken. He holds an MBA from the Indian Institute of Management, Calcutta and an engineering degree in Computer Sciences from the R.V.C.E., Bangalore.

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