RIL gains 2% as it trades ex-Jio Financial; JFS valued at Rs 262 on NSE

Shares of Reliance Industries (RIL) gained nearly 2 per cent to Rs 2,622 on the National Stock Exchange (NSE) in Thursday’s intra-day trade after stock starting trading ex-Jio Financial Services (JFS) business. At 10:07 am; RIL traded nearly 1 per cent higher at Rs 2,604.80 on the NSE and Rs 2,606.65 on the BSE.

Meanwhile, JFS was valued at Rs 251 on the BSE and Rs 262 on the NSE. The price of RIL (ex-JFS) settled at Rs 2,589 and Rs 2,580, respectively, on both the exchanges.

The stock exchanges conducted a special pre-open session for RIL on Thursday, July 20, on account of demerger of its financial services business. RIL shareholders would get one share of JFS for holding one share of RIL.

The listing price of JFS was derived by splitting the difference between Wednesday's closing price and price derived from the special session. JFS’ stock will be included in the indices, including the blue-chip Nifty 50, but will not trade until it is listed.

After the National Company Law Tribunal (NCLT) approval, RIL announced July 1, 2023 as the effective date of the JFS demerger and July 20 as the record date for issuance of shares of JFS.

Analysts at BoB Capital Markets said that the announcement of business plan for JFS could could help determine a suitable valuation for the demerged entity. JFS and its subsidiaries will leverage RIL’s technology capability and focus on digital delivery of financial products to democratise financial services, they said.

"Eventually, JFS’s valuation will depend upon clarity on regulatory capital to be deployed for identified business and the holding company discount on the value of RIL’s stake above regulatory capital requirements. While RIL’s entire shareholding may not be considered as regulatory capital, we assume that JFS will able to leverage this stake to raise the mandated funds. Until the business model evolves, we prefer to value the company in line with RIL’s marketable treasury stock," the brokerage firm added.

Against this backdrop of the group's large presence in retail and telecom segments, which drive 20 million customer base and vendor partnerships, JFS' first port of call could be consumer lending (esp. electronics) and merchant financing.

JFS' key advantage will be low funding cost/ better access on the back of group's high credit rating & ownership of 6.1 per cent stake in RIL.

The group also aspires to foray into non-lending financial businesses like life/ general insurance & AMC where it can even take inorganic route and benefit from recent regulatory change that allows banks to have up to 9 insurance partners. Payments business may be built to acquire customers, as standalone economics are quite weak.

Analysts at Jefferies said that JFS has a networth of Rs 28,000 crore and including MTM gains on 6.1 per cent stake in RIL, it may rise to Rs 1.1 trillion. Still from regulatory perspective, the core networth may be Rs14,000 crore ($ 1.7bn) once the cost of investment in RIL is deducted (in excess of 10 per cent of networth).

"JFS may over next few years look to raise capital to fund growth or support cash-backed M&A as need to write-off goodwill will bring down capital," they added.