Jio Silver Lake deal: A Deal with a Private Equity Giant

Jio –Silver Lake deal with a premium valuation. And, a cursory view of Hospitality sector.
Hope you’ve seen the movie Krrish (in which Hrithik Roshan is a superhero). As I read about the Jio – Silver Lake deal, I remembered the scene from the movie where Krrish plays Tug-of-War with a group of people. One person on one side and an entire group of people on the other and still that one person wins! After securing handsome investments from first Facebook and now Silver Lake, Jio might not be feeling less than a superhero.

Just for your information, Silver Lake is a private equity giant whose other investments have been in Alibaba, Airbnb, Ant Financial, Dell Technologies, Twitter and many others. Silver Lake has invested in global technological leaders and now it has bought 1.15% stake in Jio. The firm will invest Rs. 5655.75 crores into Jio Platforms (a wholly owned subsidiary of Reliance Industries Ltd.) for this stake. Also, with this deal Jio is valued at 4.90 lakh crores (equity value) and 5.15 lakh crores (enterprise value) which is more than 12% premium to the valuation assessed by Facebook.

What Does This Mean for Jio?

Coming back to where we started from, with this deal probably Jio has already won the tug-of-war against its competitors in the telecom sector. As per an estimate, combined valuation of other listed players (Airtel and Vodafone) is slightly more than 2.9 lakh crores. Hence, Jio’s valuation is 1.7 times more than their combined valuation! Jio has definitely changed the game now and this is not a good news at all for other telecom companies.

Sectorial Talks – Hospitality (Hotel Industry)

There’s one mistake that investors make while analyzing a hospitality stock. That is, basing their decision on the average occupancy rates. However, here’s a catch. Fixed costs of the hotel do not matter much if the breakeven is achieved at lower occupancy. But, in most of the cases the breakeven is at higher occupancies (around 70%) due to which, the hotels are unable to enjoy financial stability even during good times.

If you wish to invest in a hotel’s stock, do check their profitability at a lower occupancy. The better the stock fits into this criterion, the better option it would be for investment. It’s quite simple, first the criterion needs to be right in order to select the right stock. The data regarding the hotels’ occupancy levels is available in their Investor Presentations on ticker.finology.in.