RIL Rating: Buy | Time for value unlock

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The National Company Law Tribunal (NCLT) has granted approval for the demerger of Jio Financial Services (JFS). The record date for the demerger is set as July 20, 2023, and the listing of the new entity is expected to occur within the next 2-3 months. The effective date of the scheme is July 1, 2023.

Under the deal contours:

Share Swap: The share swap ratio is 1:1. Every RIL shareholder will receive one share of Reliance Strategic Investments Ltd (RSIL), with a face value of Rs 10. RSIL will subsequently be renamed as JFS.

Adjusted Shares Outstanding: Considering the treasury shares of 6.1% (410 million shares), the total number of outstanding shares in JFS will be 6.35 billion.

In terms of valuation:

JFS owns a 6.1% stake in RIL, which is valued at Rs 1.1 trillion. This stake represents a significant portion (90%) of JFS’s net worth. Excluding the investments in RIL shares, JFS’s net worth would be Rs 100 billion. Assuming that the investments in RIL shares account for around 90% of JFS’s net worth, the book value per share of JFS would be Rs 190. It is important to note that our current SOTP-based TP of Rs 2,825 for RIL does not include the value of JFS. Therefore, this event could potentially unlock additional value for RIL.

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RIL Rating: Buy | Time for value unlock 10

Jio Financial Services is a company that aims to operate in four main areas: (i) Lending, which includes both consumer loans and merchant loans, (ii) Insurance, encompassing both life and non-life insurance products, (iii) Asset Management Company and Wealth Management services, and (iv) Payments bank.

While JFS plans to independently handle its lending business, it is open to the possibility of entering into joint ventures or partnership agreements for the insurance and AMC/Wealth Management sectors. This collaboration could be with an existing player in the market or a new player seeking entry into the Indian market. JFS enjoys the AAA rating, similar to its parent company RIL. This high credit rating implies that JFS’s borrowing costs are expected to be among the lowest compared to other NBFCs operating in the market.

One significant advantage for JFS is its potential to leverage the vast network of 18,040 Reliance Retail stores. These stores attract a staggering 780 million footfalls annually and have a subscriber base of 440 million. This extensive customer base and footfall present a unique opportunity for JFS to reach a large number of potential customers for its financial services.

Management Team: JFS has appointed K.V. Kamath as Chairman and Hitesh Sethi, a veteran from ICICI Bank, as CEO


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