Jio Financial Services: India's biggest demerger in the value terms

According to Reliance Strategic Investments annual report for FY22, it had other long-term investments worth around Rs 181 crore

The share of Reliance Strategic Investments Ltd, the entity demerged from Reliance Industries, has been valued by the markets at around Rs 261.8, which gives it market capitalisation of around Rs 1.66 trillion.

This is much higher than the analysts’ initial estimates. The entity, which will be named Jio Financial Services (JFS), will be the biggest demerger in India’s corporate history in terms of value. Prior to this, the demerger of the erstwhile Bajaj Auto into three players in 2008 was the biggest.

This will make JFS the third biggest non-banking financial company (NBFC) in terms of market capitalisation — after Bajaj Finance and Bajaj Finserv.

JFS holds 6.1 per cent in Reliance Industries (RIL) — the country’s biggest conglomerate. The stake is valued at nearly Rs 1.08 trillion, based on RIL’s post-demerger market capitalisation of Rs 17.73 trillion on Thursday. The stake in RIL will provide a steady stream of dividend income to JFS, which can use it to grow its new businesses such as payments banks and retail lending.

RIL paid a dividend of Rs 5,412 crore in FY22 and is expected to announce it for FY23 at its upcoming annual general meeting.

The demerged entity will start with one of the biggest balance sheets in the NBFC space in the country. According to the scheme of the demerger announced by RIL, JFS will start with a net worth of nearly Rs 28,000 crore, which will be the third biggest among private NBFCs, after Bajaj Finance and Bajaj Finserv, and ahead of other established players such as LIC Housing Finance and Muthoot Finance.

This gives JFS a price to book value of nearly six times, below Bajaj Finance’s valuation of 8.5 times but higher than Bajaj Finserv’s 5.6 times. By comparison, Bajaj Holdings & Investments, India’s biggest holding company, is trading at two times its book value.

As part of the demerger, RIL’s other subsidiary Reliance Industrial Investments & Holdings (RIIH) will transfer to JFS its stakes in Reliance Retail Finance, Retail Insurance Broking, Reliance Payment Solutions, and Jio Information Aggregator Services.

These investments are worth Rs 3,531 crore at book value, based on RIIH’s balance sheet for FY22.

The market value of the JFS stake in these companies is expected to be much higher than their book value and this explains the company’s higher than expected market capitalisation.