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Reliance and Jio Financial Services: How shareholders got a premium for holding same RIL shares indirectly

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The discovered price of ₹261.85 per share for Jio Financial Services (JFS) pegs its valuation at ₹1.77 lakh crore, placing it among the leading NBFC players in the country on this metric. For comparison, Bajaj Finance’s market capitalisation stands at ₹4.59 lakh crore.

Earlier brokerages had attributed a value of ₹160-190 per share to JFS. This was based on Reliance Industries’ (RIL) announcement in October 2022 that 6.1 per cent of RIL shares were to be transferred to JFS. This implied that at ₹17-18 lakh crore valuation of RIL, the proposed entity would have an asset of ₹1.1 lakh crore on its books to start its operations. But based on the price discovery this morning, investors have assigned a premium to the operations of JFS, which are yet to take off. At present substantial value of JFS is derived from its holdings of 6.1 percent stake in RIL. Typically in India, a holding discount (quite significant in many cases) is applied for shares of other companies held, whereas in the case of JFS it has got a premium for the value of its RIL shares.

With licenses in place, the range of operations mentioned for JFS includes lending operations to consumers and merchants and other verticals including insurance, asset management, payments, and digital broking. If banking could be considered the missing piece for Indian conglomerates, this could be the next best thing for Reliance.

Advantage JFS

The large potential in retail lending combined with the digital prowess that Reliance intends to bring into operations could be leveraged. The backend also seems ripe for financial integration. Reliance Retail, a sister concern, operates 18,000 stores across 7,000 towns, including consumer electronics, and the Jio network has the largest subscriber base in the country. This starts off JFS with a ready connection with 20 million customers.

As details emerge on the operations, more clarity can be expected. The manner in which JFS will utilise the 6.1 per cent stake in RIL, expected to provide capital adequacy for operations, will have a bearing not only on JFS but also on RIL shareholders. Underwriting capabilities to address small, retail, merchant, personal, or other financial lending operations will be the real differentiator of the business, and the track record for the same must be established. This holds true even as technology has disrupted payments (in favour of lending operations) and will play a part for JFS as well. Bajaj Finance, with proven operations, trades at 6–8 times book value based on its underwriting capabilities. JFS’ estimated price to book value at 1–1.3 times (based on a 6.1 per cent stake and proportional networth assumption), while at a premium to its networth, will have to prove its mettle over the next few years to get even better valuation like its already well established peers.



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