Hong Kong: Mukesh Ambani, India’s richest man, can consistently squeeze more than $10 a barrel in refining margins out of crude. Expect no less from him when it comes to monetizing Reliance Industries Ltd.’s investment in Reliance Jio Infocomm Ltd., the fourth-generation mobile network that’s taken the nation’s digital landscape by storm.

What kind of an equity market valuation should Ambani put on Reliance Jio? The company may be an IPO candidate in late 2018 or early 2019, according to Bloomberg News.

With only one quarter of financial performance to go on, estimates vary wildly. Besides, if history is limited, future prospects are uncertain. Just how much data people in India will consume five years from now, at what price, and from whom, are all up in the air. Revenue from a possible e-commerce foray is also hard to predict.

Even with those caveats, Jio should still be worth around $20 billion, putting it in the league of Sprint Corp. in the US, SK Telecom Co. in South Korea and Telecom Italia SpA in Italy.

Graphic: Bloomberg
Graphic: Bloomberg

To see where that number comes from, start with Bharti Airtel Ltd., India’s No. 1 mobile operator.

Bharti’s $33 billion market capitalization is already factoring in an assimilation of Norwegian carrier Telenor ASA’s Indian unit as well as Tata group’s airwaves and 40 million customers. Strip out those deals, along with Bharti’s sizable African business and tower infrastructure, add net debt, and the enterprise value of the wireless network works out to $29 billion, according to analysts at HDFC Securities Ltd. That yields an EV-to-Ebitda multiple of 9 for 2019.

Now, suppose Ambani is able to attract 280 million customers by 2022, up from 139 million at present, and almost the same as Bharti’s current clientele. Assume it’s able to raise its average revenue per user to Rs200 ($3.10) a month, from 156 now. That’s $10.4 billion in annual revenue, or, at a 40% profit margin, more than $4 billion in Ebitda.

Reliance CDS since January

That might appear too rosy: Based on last quarter’s numbers, Jio’s current Ebitda run rate is less than $1 billion. But the street is even more bullish. Assign a conservative EV-to-Ebitda multiple of 8 to the fully grown Jio. Its enterprise value works out to $32 billion, or 1 time its current fixed-asset base — at the lower end for global telecom firms. Take away $7.5 billion in borrowings, and another $4 billion in spectrum liabilities, and the market value is still north of $20 billion.

Graphic: Bloomberg
Graphic: Bloomberg

Whether Reliance shareholders can monetize a chunk of that will depend on how eager the market is to buy into Ambani’s vision of “data as the new oil," versus how anxious the tycoon is to sell.

With the energy-and-petrochemical firm’s credit default swaps headed resolutely south, there’s no reason to rush anything. Bloomberg Gadfly

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