Reliance’s Jio Financial Spin-off Soars Past Estimates, Valued at $20 Billion
Jio Financial Services (JFS) has achieved a valuation of approximately $20 billion following its demerger from Reliance Industries, which was owned by Indian billionaire Mukesh Ambani. The stock price for JFS was set at a much higher rate than expected, reaching Rs 261.85 ($3.19) during the demerger process.
The demerger, announced in October of the previous year, is viewed as Reliance Industries’ strategic move to expand its presence in the profitable financial services sector. This step is particularly significant as Reliance already possesses a non-bank financial company license, making it well-positioned to explore opportunities in the financial industry and capitalize on its existing expertise and infrastructure.
With a valuation of $20 billion, Jio Financial Services would rank among the top 40 Indian companies by market capitalization. At the top of this list is Reliance Industries, with a market capitalization of $233 billion, making it the most valuable company in India. Jio Financial’s impressive valuation places it in a prominent position within the Indian corporate landscape, reflecting its significant potential and market influence within the financial services sector.
On Thursday, India’s main stock exchanges conducted a unique and historic trading session known as the “pre-open call auction” for Reliance Industries. The purpose of this special hour-long session was to determine the share price of Jio Financial Services (JFS) following its demerger from Reliance Industries.
During this pre-open call auction, traders and investors had the opportunity to place orders and quotes for JFS shares before regular trading commenced. The session allowed for a more organized and transparent process to establish the initial share price of JFS and ensure an efficient market response to the demerger.
This move signifies the significance and attention given to the demerger and the value it brings to both Reliance Industries and Jio Financial Services, as they enter the financial services sector with potential for significant growth and market capitalization.
The share price of Jio Financial Services (JFS) was determined to be Rs 261.85 during the special “pre-open call auction” trading session. This price was calculated as the difference between Reliance Industries’ closing price on Wednesday, which was Rs 2,841.85, and its price at the end of the special session, which was Rs 2,580.
By deducting the closing price from the price at the end of the session, the difference of Rs 261.85 was established as the share price for JFS. This valuation is crucial for JFS as it represents the starting point for its individual trading and market capitalization as a separate entity following its demerger from Reliance Industries.
Jio Financial Services’ stock price of Rs 261.85 is significantly higher than analysts’ earlier estimates, which ranged from Rs 160 to Rs 190. This higher-than-expected stock price reflects the strong confidence investors have in the future performance of JFS, particularly with its exposure to Jio’s extensive mobile customer base.
The fact that stockholders will receive one JFS share for each Reliance share they hold further highlights the value and potential seen in JFS as a separate entity within the financial services sector. This distribution is likely seen as a positive development for existing Reliance shareholders, as it provides them with the opportunity to participate in the growth prospects of JFS, which is perceived as having a promising future with access to Jio’s substantial customer base.
The significant holding of nearly 1 trillion rupees of Reliance’s treasury shares by Jio Financial Services (JFS) is a crucial factor contributing to investor confidence. This indicates that JFS has a substantial backing of valuable assets, further reinforcing its financial strength and stability.
According to G Chokkalingam, the founder and head of research at Equinomics, the unlocking of Jio Financial Services (JFS) is just the beginning, and he anticipates significant growth opportunities not only for JFS but also for its parent company, Reliance Industries. He believes that Reliance Industries’ stock will also experience substantial growth, as JFS’s demerger is only the initial step, and there will be more opportunities for shareholders from the expansion of Reliance’s retail and telecom businesses.
Jio Financial Services (JFS) is expected to benefit significantly from its access to vast amounts of data from Reliance’s telecom and retail businesses. This data access will play a crucial role in enabling JFS to initiate lending operations. Analysts, including Macquarie Research, anticipate that JFS will likely be designated as an AAA-rated entity, which would allow it to borrow funds at attractive interest rates due to its high creditworthiness.
Reliance Strategic Investments, the unit that will be renamed JFS, reported a net profit after tax of Rs 145 crore ($17.7 million) for the quarter spanning April to June. This profit was achieved based on revenue amounting to Rs 215 crore during the same period.
Reliance Industries’ shares experienced a significant surge of approximately 8% from July 8, which was the date set for the record of the demerger of Jio Financial Services (JFS), through Wednesday.
Following the special “pre-open call auction” session to determine JFS’s share price, Reliance Industries’ stock continued to perform well, trading approximately 1.1% higher at 11.50 a.m. IST.
Year-to-date, Reliance Industries’ shares have shown impressive growth, rising by 11.6%. This performance has outpaced the 9.5% increase observed in the benchmark Nifty 50 index, indicating the market’s positive response to the demerger and the potential unlocked value through the creation of JFS as a separate entity.
