Ambani’s Jio call requires perfect reception

Bharti Airtel

Yesterday 13:00

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Shritama Bose

    MUMBAI, June 22 (Reuters Breakingviews) - Mukesh Ambani is making bold promises about connectivity. But he has already disappointed the A-list backers in his telecoms company. And the billionaire's latest pledges that the business will tighten its grip on India's data market and push into foreign ones deserve more scepticism from investors considering jumping into its upcoming initial public offering.
Jio Platforms' up to $3.8 billion share sale could be India’s largest listing on record. The company's prospectus filed late on Friday, though, confirmed the company would only be offering new stock. This means the outsiders led by Meta META.O, Alphabet’s GOOGL.O Google and KKR KKR.N which own a third of existing shares, will wait longer to crystallise tepid returns.
In 2020, they bought the promise that $188 billion Reliance Industries RELI.NS would transform Jio into a tech platform offering services from cloud computing to connected homes. Six years on, that target looks far from achieved: Jio still earns 94% of its profit from volume-led monetisation of its 524 million mobile subscribers. And although its 528-page prospectus waxes lyrical about its autonomous platforms and proprietary technology stack, Jio lags its main rival, $123 billion Bharti Airtel BRTI.NS, on basic measures, including EBITDA margins and average revenue per user.
That undercuts Ambani’s latest wide-ranging promises, including a vow to deepen his dominance of the home broadband market, where Jio caters to 43% of India's 64 million premium subscribers. He’s also touting venturing into satellite communications and unnamed markets overseas, including offering its AI engine, JioBrain, to other global telecoms companies. 
Out of all of these, Jio's domestic ambitions look most within reach. That said, Indian regulators impose ceilings on some mobile tariffs and it is hard to grow a premium service like broadband in a market where most consumers are poor. Rules on net neutrality may also hamper Ambani's ability to offer business clients higher-yielding differentiated services. 
Jio’s targeted $130 billion market capitalisation is already a big step down from the $180 billion price tag bullish analysts assigned it earlier this year before the Iran war knocked the rupee. But even this revised figure will require investors to pay a multiple of 35 times Jio’s earnings for 2027, per Visible Alpha estimates. Compare that to 30 times for Airtel, which already generates around one-third of its EBITDA outside of India.
There isn't anything compelling in the Jio filing to support a premium valuation. If Ambani wants his IPO to fly, he may need to trim his ambitions further. 
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CONTEXT NEWS
Jio Platforms, the telecoms business of Reliance Industries, will raise up to $3.8 billion in a Mumbai initial public offering, which could be India's largest on record, Reuters reported on June 19, citing unnamed sources.
The offer will comprise up to 270 million new shares, equivalent to 2.9% of the total enlarged share count, Jio’s prospectus showed. The fundraising target implies a market capitalisation of $130 billion.
Proceeds will be used to repay subsidiary borrowings and general corporate purposes.
The deal has 19 book-running lead managers led by Kotak Mahindra and Morgan Stanley.
Jio is evaluating the development of a sovereign low earth orbit satellite constellation for India, Reliance Chair Mukesh Ambani said at the company's annual shareholder meeting on June 19. 
     

(Editing by Una Galani; Production by Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on BOSE/shritama.bose@thomsonreuters.com))