Rs 1 lakh crore-umbilical cord links fate of Jio Financial shares with RIL
Reliance Industries, about 60% of the Rs 1.6 lakh crore-market capitalisation of Jio Financial Services or JFSL is nothing but a result of its 6.1% stake in parent entity RIL.
As part of the demerger, JFSL has received 413 million treasury shares or 6.1% of the total share capital of RIL. At the current market price, the value of these shares is about Rs 1 lakh crore.
JFSL can either sell these shares in a staggered manner or simply hold on to them.
Till the time RIL shares are part of JFSL's piggy bank, any potential upside or downside in RIL stock can have a ripple effect on the NBFC stock as well.
Given the fact that the business of Jio Financial is still in its nascent stages, a large part of its valuation is derived as a holding company.
«An equity stake in unrelated group companies is typically valued at some level of holding company discount for most large, listed stocks possibly because investors do not like unrelated businesses and/or if this stock is separately listed then investors can directly take ownership rather than through a holding structure,» said CLSA analyst Vikash Kumar Jain.
Other than stake in RIL, liquid assets worth $2.5b billion have been demerged into JFSL. Looking at peer NBFCs, this can support a loan book of $13-15 billion.
Even at the speed of the recent annual loan book additions of sector leader Bajaj Finance, JFS will take nearly three years to fully use up this amount. This takes away the need to liquidate its stake in RIL in the near term," Jain said.
However, given the scale of resources being committed and a credible leadership team, the market will also ascribe value to its future potential.
«Ascribing 5x multiple to Rs 193 billion of consolidated net worth (excluding cost basis
