What Could Be The Real Value Of Jio Financial Services?
JFS is valued at Rs 154.4 apiece without ascribing a holding company discount.
Reliance Industries Ltd. approved the demerger of the financial services business to create Jio Financial Services Ltd., the third direct consumer-facing business of the billionaire Mukesh Ambani-controlled group after retail and telecom.
The shareholding of Jio Financial Services will mirror that of RIL, with each shareholder getting one share for every one held in the parent. This is because the financial services business has been incubated by RIL through its subsidiary Reliance Industrial Investment and Holding Ltd., which currently holds licenses for a payment gateway, non-bank lending and broking, among others.
Jio Financial Services will focus on digital delivery of financial products and launch consumer and merchant lending for the 2 crore retail customers it has acquired through the direct-to-consumer venture.
The new financial arm will start with an equity share capital of Rs 6,570.3 crore to mirror the shareholding of RIL. Currently, Reliance Strategic Investments, the company which will house the financial arm, has a capital base of Rs 2 crore.
Reliance will capitalise the company as part of the scheme of arrangement to ensure the financial arm will have sufficient regulatory capital for business growth.
This capital is likely to further change upon the induction of new investors. The company said the flexible structure for JFS enables it to partner with strategic or financial investors.
Jio Financial Services In Numbers
According to Reliance Industries' disclosures:
Financial services segment had a revenue of Rs 2,127 crore in FY22.
Reliance Industrial Investment and Holdings had a financial services revenue of Rs 1,750.8 crore in FY21.
But the revenue of the demerged financial services business stood at Rs 1,390 crore as of FY22.
What that means is the parent is not completely transferring the entire financial services assets to JFS. So what businesses will be part of JFS will be a key thing to watch for.
What's The Likely Value Of Jio Financial Services?
The financial services arm will own 6.1% stake in RIL, which is valued at Rs 1.01 lakh crore or around $12 billion. This stake will be used to fund its regulatory capital requirement.
Currently, the stake is calculated as part of the promoter group where the ultimate beneficiary is Reliance Industrial Investment and Holdings. The listing of JFS with treasury shares would then effectively distribute this stake to all existing shareholders.
With stake being transferred to JFS, the value of the stake per share of JFS comes to Rs 154.4 apiece, but that is without ascribing a holding company discount.
Assuming an up to 50% holding company discount, the price per share would be at least Rs 77 apiece. A lesser discount, say of 30%, will give a value of Rs 108 apiece. To be conservative, at a 50% holding company discount, Jio Financial Services could be valued at a little over Rs 50,591 crore.
If the stake is sold for regulatory capital, it could be bought by the promoter group to maintain their stake in RIL at current level—just above 50%.
If this stake is not monetised, then JFS would get a regular dividend income from Reliance Industries. Going by last year’s final dividend payout of Rs 8 apiece, that amounts to around Rs 330 crore.
The scheme will envisage acquiring liquid assets—RIL treasury stock—to provide regulatory capital for lending to consumers, merchants to incubate financial verticals like insurance, payments, digital broking, and asset management for at least the next three years of business operations.
RIL already has regulatory licences for the key businesses in place, the company said.
These businesses could be part of Jio Financial Services:
Reliance Retail Finance Ltd.
Reliance Retail Insurance Broking Ltd.
Reliance Petroleum Retail Ltd.
Reliance Payment Solutions Ltd.
Jio Information Aggregator Services Ltd.
JFS, through Reliance Retail Finance, will serve the retail and small-business focused product categories by leveraging the technological capability of Reliance and focus on digital delivery of financial products.
Jio Information Aggregators and Reliance Petroleum Retail were yet to commence operations at the end of March 2022.
The demerger of financial services is unlikely to unlock much value for Reliance Industries, according to brokerages, as the size of the business is not much. But it will give RIL shareholders access to fast-growing digital fintech sector, which will be capitalised sufficiently for growth capital, either through sale of treasury stock or stake to strategic or financial investors.