Why RIL should consider spinning off more of its businesses
₹261.85 a share whereas the notional “acquisition cost" was estimated to be around ₹133 a share. The market value of the new company, which is currently unlisted, is estimated to be around ₹1.67 trillion. RIL spun off the subsidiary by issuing a share of JFSL for every RIL share held by investors on Wednesday.
This means JFSL has a total outstanding equity of 635.3 crore shares and also holds approximately 6% of RIL. A special pre-trading session was held on Thursday to discover the market price of JFSL. The RIL share price dropped by ₹261.85 in that session.
Since nothing else changed for RIL, this amount was considered to be the derived market price of the new company, which is expected to be listed for trading soon. Given that RIL is a behemoth and changes to its market cap will affect the major indices, the NSE and BSE will make special adjustments until JFSL is actually listed for trading. Incidentally, the price of RIL recovered considerably during the normal trading session and in the next trading session.
There are several ways to value an unlisted business – in this case, an unlisted subsidiary of RIL. Broadly, financial analysts will look at revenue, profit, growth rates and comparable numbers of listed peers to arrive at a valuation. Apart from differences in valuation methods, there is a subjective element to this exercise.
Analysts and investors with different mindsets will assign different weights and multiples to the numbers on the same balance sheet. This, in fact, is why you will find buyers and sellers for a stock at any given price. The buyers think the company is worth more while the sellers believe it’s time to cash out.
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