Jio IPO: Ambani’s tech titan listing story isn’t yet credible: View

Having gone from petrochemicals prince to communications czar and media mogul, India’s second-richest tycoon now wants to be a tech titan. Or at least, that’s how Mukesh Ambani is hawking his digital empire — not as a boring wireless company collecting $2.25 a month from an average user, but as a hotbed of globally valuable innovation.

The draft prospectus for Jio Platforms Ltd.’s upcoming initial public offering says that more than 11,000 of its employees — two-fifths of the workforce — are in digital products and technology development teams. By March this year, Jio and its subsidiaries had applied for more than 6,800 patents across 4G, 5G, 6G technologies, AI-driven network automation, and other areas.

And then, on page 116 of the IPO document, comes the hook:


In evaluating the Issue Price, investors should consider that our business model, characterized by full-stack proprietary technology ownership, a multi-layered digital services platform, AI-driven network automation, and international technology licensing potential, shares characteristics with global technology platform companies.

So is this basically a pitch to seek a superior valuation for a consumer business, by packaging the share sale as India’s answer to the SpaceX IPO?

Since its splashy 2016 debut as a 4G upstart offering free voice calls and cheap data, Jio has come to dominate India’s mobile-services market. A busy field of a dozen competitors has collapsed into an effective duopoly. Bharti Airtel Ltd. is still the larger telco, though it garners more than a quarter of its revenue from its faster-growing African business and another 15% from tower infrastructure. Strip those out, and Jio, which makes its money serving up copious amounts of data to 550 million subscribers, is comfortably ahead.

Still, while the listing-bound company’s return on net worth is less than half of Bharti’s, the market is expecting a valuation of $120 billion to $140 billion. On last year’s profit of 300 billion rupees ($3 billion), that means rivaling or exceeding Bharti’s price-to-earnings multiple of 40.

One way to square the circle is to talk about the future. Jio’s 5G expansion was fast and furious, but the payoffs are still trickling in. Returns on capital should improve if last year’s 28% growth in digital services — entertainment content, AI subscriptions and other add-ons — continues to outpace the 13% growth in vanilla telecom. This is one reason why both Ambani and his marquee co-investors, including Meta Platforms Inc. and Alphabet Inc., are staying invested through the listing on Indian exchanges.

The bigger question is, what’s in it for IPO investors? Beyond retiring debt to save on interest costs, how will the telco deploy the $4 billion or so it may raise? Fresh expenditure for 6G is some years away. Which is perhaps why Ambani is keen to flex Jio’s tech muscles.

Assessing Ambani’s tech chops means examining Jio’s patents — nearly 2,400 filed in India and 4,400 overseas. But some patent practitioners told me that they’re skeptical about the true worth of this intellectual property. Nearly 85% of the applications have been filed in just the last four years. Out of the 6,100-plus that can be tracked with Google Patents, 95% show up as pending. A single executive, Chief Technology Development Officer Aayush Bhatnagar, is listed as an inventor on 77% of filings. That makes him more productive in recent years than some prolific researchers at Samsung Electronics Co. and Qualcomm Inc., operating with far bigger R&D budgets.

Bhatnagar’s team has built clever operational tools, like cricket broadcasting software that allows for a highly immersive experience. But exporting homegrown 5G will require a stronger proof of value. Although telecom-industry experts believe that about 550 of Jio’s patent applications are around global communication standards, investors have no way to tell if they are significant enough to derive royalty streams from licensees. Jio’s parent Reliance Industries Ltd. didn’t respond to an email request for comment.

Jio’s domestic edge is real enough. India’s fixed-wireless access market has tripled since 2019, with Jio capturing two-thirds of new users of late by leveraging unlicensed radio frequencies. The prospectus says that the scale of the network — the largest outside China — demonstrates expertise that it can take to any of the 95 other countries where less than half the population has a broadband connection at home. That’s a $75 billion-a-year opportunity.

Yet even if a foreign operator were to adopt Jio’s frugal innovation to cut costs, the spoils may still go to entrenched giants like Nokia, Ericsson, Huawei, ZTE, and Samsung. Ericsson AB backs its tech-leadership claim with 27,000 researchers, $5 billion in annual R&D, and 60,000 patents built over decades. Jio’s financial statements don’t contain a standalone R&D expense line; Indian accounting laws don’t require it. But its entire wage bill is $700 million, hardly enough to sustain cutting-edge effort.

A patent is just a legal certificate, and not all that hard to obtain — at 54%, the acceptance rate at the US Patent Office gives better odds than a coin toss. What matters is the commercial value of the knowledge and the scope of the granted claims. And for Ambani, that’s still unproven.