Jio, a 3-year old telecom company, is now bigger than HDFC, Infosys and ITC – and India's largest bank

• Facebook acquired a 9.9% stake in Reliance Jio for ₹43,574 crore, valuing the 3-year old telecom company at ₹4.4 lakh crore.
• At this valuation, Reliance Jio is bigger than many other bluechip companies like HDFC, Infosys, ITC and even SBI, India’s largest bank.
• In the telecom sector, Reliance Jio’s valuation towers over its competitors Airtel, Vodafone Idea and Tata Communications.

In the last three years, Reliance Jio disrupted the Indian telecom industry, to emerge as the top telco both in terms of revenue as well as market share. Jio which launched operations in late 2016, is now bigger than HDFC, Infosys, ITC and India’s largest bank - as valued by the Facebook deal.

Earlier today, Facebook paid $5.7 billion (₹43,574 crore) for a 9.9% stake in Jio, valuing it at ₹4,40,141 crore. This puts the value of Reliance Jio at 52% of its parent company, Reliance Industries as per today’s market capitalisation.

But that’s not all. At its current valuation of ₹4.4 lakh crore, Jio, a three-year old company, is now bigger than many old blue-chip giants like HDFC, Infosys and ITC. In fact, it is more than 2.5 times bigger than State Bank of India, the largest bank in the country.

Is Jio’s valuation high?

At its current valuation of ₹4.4 lakh crore, Jio would be the fifth largest company by market capitalization on the BSE Sensex. The reason, it would seem, is that Mark Zuckerberg paid a premium for his 9.9% stake in Jio.

Deven Choksey, the managing director of KR Choksey Shares & Securities told Business Insider, a day before the deal was sealed, that he valued Jio at ₹550 rupees a share. This was when RIL shares were trading at around ₹1200 apiece. Based on a market cap ₹7.8 lakh crore, Jio would be worth ₹3.4 lakh crore as per Deven's estimate.

In comparison, at ₹4.4 lakh crore, Zuckerberg has paid 33% more than Choksey’s valuation. The subsequent rally in RIL’s shares proves it to some extent, after it jumped by more than 9% to trade above ₹1,300 for the first time since the lockdown was announced.

This is why Zuckerberg is paying a premium for Jio

There could be a couple of reasons for Zuckerberg paying a premium for Jio.

Firstly, Zuckerberg’s company has struggled to get WhatsApp Pay off the ground for the last three years in India. This could not happen, in part due to privacy concerns and in part due to complaints by local payment operators.

Secondly, the deal with Reliance gives Facebook the access it needs, and that could go a long way. “With communities around the world in a lockdown, many of these entrepreneurs need digital tools they can use to find and communicate with customers to grow their business,” Zuckerberg said in a post today.

What does this mean for Airtel?

Airtel’s current market cap is at ₹2.75 lakh crore, which is a little over 60% of Jio’s valuation. It needs to be mentioned that Airtel too clinched a similar partnership with Google earlier this year.

As per their January announcement, the partnership will bring small and medium businesses (SMB) online using G Suite. This could be in response to the Jio-Microsoft partnership which promised to bring Office 365 and other tools to medium and small enterprises (MSME).

While Jio has Microsoft and Facebook on its side, Airtel has Google. These partnerships also mirror a global level partnership since Microsoft and Facebook have teamed up for years across projects.

See also:

WhatsApp Payments battling Paytm, Google Pay and PhonePe for India's $1 trillion opportunity by end of year

Here's why Facebook's Mark Zuckerberg is paying top dollar for a stake in Mukesh Ambani's Reliance Jio

Mark Zuckerberg's Facebook picks up 9.9% stake in Mukesh Ambani's Jio for $5.7 billion