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Analysts tout benefits of possible US IPO for India's Jio amid investment boom

With everyone clamoring to own a piece of Jio Platforms Ltd., owner of India's largest mobile operator, Jio's parent company may be eyeing an overseas listing.

Over the course of two months, Reliance Industries Ltd.'s Jio Platforms has attracted $13.72 billion in investments from major players like Facebook Inc. and private equity firm TPG Capital LP. With investors across the U.S. and UAE paying big money to own a piece of Jio, Bloomberg News reported that Reliance is looking to take advantage of the interest and is preparing for an initial public offering in an overseas market in the next one to two years.

Analysts say investors are attracted by the combination of Jio's mobile network, which counts more than 388 million subscribers, and its range of digital and e-commerce services such as music streaming, live online television and the payments app JioMoney. Moreover, they note a U.S. listing would give Jio's recent string of private investors higher returns as the public float is likely to receive higher valuations abroad.

"In India, you do not have depth in the market therefore it makes sense for Reliance Jio to not list domestically," Pranav Bhavsar, Indian consumer analyst at ASA Capital Management said, pointing to greater liquidity in the U.S. market.

On June 16, the Nasdaq's daily trading volume was US$198.61 billion, compared to India's National Stock Exchange's volume of about US$7.91 billion on the same day.

Going overseas will boost the company's funding prospects, and therefore Jio Platforms is likely to receive a higher valuation, agreed Shifara Samsudeen, equity analyst at LightStream Research.

She noted that a U.S. listing would expose the company to global investors, whereas a domestic listing would tie its capital funds to Indian markets.

A U.S. listing could also attract the same investors that looked at Alibaba Group Holding Ltd., the analysts said. When assessing Jio's potential valuation, Alibaba is a comparable company on an enterprise value/sales basis, as its business model and vision of merging retail services with digital services is similar to Reliance Industries', they added.

According to a research report on Smartkarma, Alibaba's enterprise value is US$571.9 billion with an enterprise value/last-12-months revenue multiple of 7.9x. Jio Platforms' enterprise value is estimated to be US$64.8 billion with an EV/LTM revenue multiple of 8.4x.

Reliance has said it is keen on unleashing the e-commerce and retail potential of its online grocery delivery platform, JioMart, through its US$5.7 billion deal with Facebook. The deal will involve linking Facebook's WhatsApp with JioMart so that customers are able to transact via the messaging app. At the time of the announcement, Reliance said the partnership will focus on India's 60 million micro, small and medium businesses; 120 million farmers; and 30 million small merchants.

"The recent string of investors attracted to Reliance's Jio Platforms are buying into this promise of changing India's retail landscape. With all this muscle power and proceeds from the IPO, Reliance may be able to disrupt India's e-commerce space the way it did within the telecom sector," ASA Capital's Bhavsar said.

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This is in line with comments from Michael Chu, global co-CEO of the U.S. private equity firm L Catterton Partners. The firm on June 13 bought a 0.39% stake in Jio Platforms at a price of approximately $250 million. Chu said Jio is "uniquely positioned" to build a digital society for India's 1.3 billion citizens.

In the next one-to-two years leading up to the IPO, Jio will significantly ramp up its retail business through investments in artificial intelligence, internet of things and technology acquisitions similar to the ones it has already carried out, Sanchit Vir Gogia, CEO and founder of Greyhound Research said.

With this strategy, coupled with the company's growing telco business, Reliance's Jio Platforms will be a "mature business," as Alibaba's was, by the time it lists overseas, Gogia said. He estimated Jio's valuation to be in the range of US$150 billion to US$200 billion at the time of listing.

If JioMart, which remains a work-in-progress, does not turn out to be as promising as the company hopes, analysts have said Jio Platforms' valuation will be impacted. They noted that the company's telecom business, which currently accounts for almost all of Jio Platforms' revenues, cannot alone achieve high multiples as the market is saturated with little room for growth.

On May 17, the Indian Finance Minister Nirmala Sitharaman gave the go-ahead for direct listings by Indian companies on foreign stock exchanges in "permissible jurisdictions," with more details expected to be released soon. Prior to the announcement, many Indian companies used to incorporate in overseas markets with the intention to list directly on foreign exchanges.