It’s Time for “Jio Dhan Dhanadhan” in Financial Services Sector

With India’s Big Daddy Reliance announcing the demerger record date, the D-Street is ready to pave the way for a major disruption into the Financial Services Sector as the newbie “Jio Financial Services” is all set to unlock the value for the stakeholders.

July 20 is the record date announced by Reliance for demerger. So, let’s check out some important aspects of the demerger and how will it unlock value for shareholders.

1. Jio Financial Services – Basket of a Plethora of Financial Services Offerings

Erstwhile Reliance Strategic Investments will be renamed as Jio Financial Services Ltd. Jio Financial Services (Referred to as JFSL here) is a financial services undertaking with investments in 6 companies namely:

a. Reliance Industrial Investments and Holdings Limited
b. Reliance Payment Solutions Ltd
c. Jio Payments Bank Ltd
d. Reliance Retail Finance Ltd
e. Reliance Retail Insurance Broking Ltd
f. Jio Information Aggregator Services Ltd

BofA believes “By Separating financial services from core business, Reliance appears to be keeping an arm’s
length transactions from other entities and in theory helping them better attract strategic or JV Partners who are interested only in Financial Services Arm – like what they did with Reliance Jio or tower InvIT

2. Unlocking Value with the Disrupting Demerger

The Demerged entity JFSL will lend to consumers and merchants based on proprietary data analytics and will eventually explore insurance, digital broking, asset management and payments.

This most sought-after spinoff will create fifth largest financier in terms of capital and compete with pivotal peers like Bajaj Twins, Paytm etc.

JFSL will also complement Reliance’s Consumer Businesses including India’s largest wireless operator with about 428 million users, top retail chain with over 17000 stores.

3. The Key People

•  Isha Ambani : Non-Executive Director
•  Anshuman Thakur : Non Executive Director
•  Hitesh Kumar Sethia (Ex ICICI Bank, McLaren Strategic Ventures) : Managing Director and CEO
•  Rajiv Mehershi (Former Finance Secretary) : Additional Director
•  Sunil Mehta (Former Head – Punjab National Bank : Additional Director
•  Bimal Manu Tanna – Certified Public Accountant : Additional Director

4. The Scheme of Arrangement

Existing Shareholders of Reliance Industries (RIL) will get 1 share of JFSL for 1 share of RIL.

5. The most awaited NBFC – Jio Financial Services

According to various sources including brokerage houses and research firms, the demerged entity is expected to come up with IPO anytime during August or September 2023, but Reliance came up with the demerger.

According to RIL, a detailed roadmap of JFSL will be shared in the AGM, this listing will help RIL shore up its nascent financial services presence by leveraging its growing consumer operations.

6. JFSL – Reliance’s Growth Accelerator

According to Jefferies,

•  JFSL will differ from its peers in a major way due to the availability of huge data gathered from non-financial relationships, ability to process and analyze the data in real time to offer financial services on the likes of Amazon, Alibaba, Google, Facebook etc.

•  JFSL has a large balance-sheet, not be asset-light and eventually manufacture most product offerings giving it significant competitive advantage

•  Becoming the fifth largest financial services company in India in terms of networth, JFSL has significant scope for balance-sheet expansion

•  Unparalleled Distribution Footprint

•  Strong and experienced Management

7. Expert Opinions straight from D-Street

“I believe this is going to be a good value addition as far as Reliance Group shareholders are concerned. This company is starting with an underlying networth of about ₹ 15 lakh crores, indicating that they would be starting with a very strong proposition compared to their listed peers in the marketplace”

                                                                                                                                                                 - Deven Choksey

“We value JFSL’s core networth at 3-5x P/BV and investments in RIL at a 30% holding company discount to arrive at a price range of ₹ 157-190 for JFSL”

                                                                                                                                                               - Centrum Broking

“We value JioFS in the range of Rs 90,000-150,000 crore that implies Rs 134-224 per share in RIL’s sum of the parts (SoTP). We incorporate Rs 179 per share as base case valuation for JFS in our SoTP,”

                                                                                                                                                                             - Jefferies

Global brokerage firm JP Morgan estimates JFSL’s share price at ₹ 189 per share.

Conclusion

Mentioned above are the top 7 pointers every investor and stake holder should know about the “Most Sought After Demerger of Jio Financial Services”

After making its mark in the Telecom Trajectory, everyone awaits to see if Jio Financial Services can be really be the next big thing for Mukesh Ambani and Reliance group? But looking at the innovations and disruptions made by Reliance in the past, we await the #JioDhanDhanadhan Moments in Jio Financial Services too.
 
Disclosure: Information shared above contains excerpts from company press releases, newspapers, and research reports wherever required. The information is for learning and educational purposed and should not be construed as an investment advice.