Leader's Premium: The math behind Jio Platforms' price

AI Summary

Jio Platforms' IPO is priced at a premium to peers, reflecting its leadership in telecom and digital services with large scale and 4G/5G technology. It plans to raise over $4 billion, and despite smaller revenue than some global peers, it maintains higher valuation multiples due to growth and platform advantages.

ET Intelligence Group: The initial public offering (IPO) of Jio Platforms, based on the data from the DRHP filing, is priced at a premium to listed peers given its market leadership and large scale of operations across telecom and digital services.In addition, though small in terms of annual revenue and profits, Jio commands a significant valuation premium over its global peers, reflecting its differential offerings aided by a pureplay 4G and 5G network and proprietary digital platforms compared with global giants that are mature utility providers with legacy 2G and 3G infrastructure.Jio Platforms plans to issue 270 million fresh equity shares, taking the total paid-up equity to 9.21 billion shares. At an anticipated market capitalisation of over ₹12-14 lakh crore, the company is estimated to raise up to ₹42,000 crore, or more than $4 billion, from the primary market.This implies a price-earnings (P/E) multiple between 40 and 46, while its enterprise value (EV) will be 16-19 times of the operating profit before depreciation and amortisation (Ebitda). In comparison, Bharti Airtel trades at a P/E of 43.6 and an EV/Ebitda of 10.8.131869414Top global telecom giants based on market capitalisation including T-Mobile, Verizon and AT&T trade at P/E multiples between 10 and 17 while their EV/EBITDA is between 7 and 11. In revenue terms, these companies are six-nine times bigger than Jio Platforms.Jio Platforms' revenue from operations increased by 16% annually to ₹1.5 lakh crore between FY24 and FY26 while net profit grew by 18.4% to ₹30,049 crore. The Ebitda margin remained in a tight range of 50-52% during the period. For Bharti Airtel, revenue grew by 19% annually to ₹2.1 lakh crore while net profit increased four times to ₹33,823 crore. Bharti's operating margin improved to 57% in FY26 from 52% in FY24.Bharti's net debt relative to Ebitda was 1.4 times while its return on capital employed was 19%. This compares with 0.4 times and 10.8% for Jio Platforms in that order.On the operating front, Jio Platforms had a larger scale with 524.4 million customers at the end of FY26 compared with 482.4 million for Bharti's Indian business. In addition, Jio handled data traffic of 241.4 billion gigabytes (GB), more than two times when compared with 101.3 billion GB for the latter. However, Bharti's average revenue per user (ARPU) at ₹257 was higher than ₹214 for Jio Platforms.