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The brokerage said that Jio<\/a>’s focus on subscriber addition is due to the fact that it would enable it to cross-sell and up-sell digital opportunities to its subscriber base in the long term. The Digital potential could be valued based on the sum of the parts approach, valuing the opportunities for Jio’s digital assets – Video (Jio TV and Jio Cinema<\/a>), Audio (Jio Saavn<\/a>) and consumer IoT\/smart sensors.
“We ascribe an equity value of $15 billion for Jio’s Digital assets and the contribution of these assets into our target price for RIL (of INR 2,815\/share) at ~INR 120\/share; this valuation implies ~2.2x the investment of ~INR 512bn done by Jio to build its digital assets and is justified in our view given Jio’s ability to control those assets (B2C),” the brokerage said in its note.
“Hence, out of the total Digital business value of ~INR 930\/share, ~INR 810\/share is attributable to the Telecom business and ~INR 120\/share is attributable to pure Digital assets.”
India’s digital market opportunity is likely to grow 4-5x to over $1 trillion by FY25, as per a MeiTY study. Covid-19 has further accelerated data consumption due to virtual working and adoption of Digital apps.
The current digital economy of $200bn is largely made up of ecommerce, digital payments, digital communication services, and IT-BPM services. While the government expects these to grow to $500-650bn by FY25E, with tailwinds from digital media and entertainment services and a robust electronics manufacturing ecosystem, it envisions new and emerging digital use cases to contribute USD 385-505bn to the digital economy by FY25E.
Telcos are eyeing this opportunity and have been collaborating with other digital ecosystem players and digital apps to expand their offerings and, hence, strengthen consumer stickiness.
“Jio clearly leads other telcos in the effort to monetise digital opportunities due to its large +416mn telecom subscriber base and stakes in various digital platforms, network effects due to presence of a large number of apps, which increases subscriber stickiness within the ecosystem and enables cross-selling of solutions; and an efficient business structure that clearly allows for the demarcation of the core connectivity business and the digital business,” JM Financial said.