Reliance Jio could list at $112bn valuation, 15% upside in RIL: Jefferies

Jefferies report on Reliance Jio listing: Assuming Jio is spun off from Reliance Industries' stable, the fair value for RIL stock would be Rs 3,580, Jefferies said

Jefferies on Reliance Jio listing: Reliance Industries' telecom arm Reliance Jio could list on the bourses in calendar year 2025 with a likely valuation of $112 billion, global brokerage Jefferies said in a report on July 10. RIL, Jefferies said, could look to spin off Jio Platforms and list it after a price discovery.

"Assuming Jio is spun off from Reliance Industries' stable, our fair value for RIL stock would be Rs 3,580. If IPO-ed, RIL's fair value would fall to Rs 3,365 in the base case (adjusted for 20 per cent holding company discount)," Jefferies said. Jefferies target price, in case of a spin-off, implies a 14 per cent upside in their base case scenario.

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In their bull case, they value RIL stock at Rs 3,700, implying 18 per cent upside. 

Operationally, Jio was the first telecom services provider to announce tariff hikes. It, however, kept the feature phone tariffs unchanged. This, analysts said, showed Jio’s focus on monetisation and subscriber market share gains.

“These moves create a case for a possible public listing in CY25 in our view. RIL could look to IPO or spin off Jio, as it did with Jio Financial Services (JFS),” Jefferies said.

Reliance Jio listing: Spin-off route

Shareholders in Reliance Industries, according to Jefferies, would receive their proportionate shareholding in Jio adjusted for RIL's 66.3 per cent stake in the latter. This would avoid the holdco discount and enable better value unlocking benefiting RIL shareholders. The owner's stake in Jio would fall to 33.3 per cent on listing.

“The strong performance of the stock prices of Reliance Industries and Jio Financial Services (which, too, was a spin-off) since the event, as well as the less than majority stake of the owners in JFS, may tilt the owner to adopt the spin-off route for Jio,” Jefferies said.

Reliance Jio listing: IPO route

In the other scenario, where Reliance Industries Chairman Mukesh Ambani decides to list Jio Platform via the IPO route, Sebi regulations would mandate RIL to list only 10 per cent of Jio.

“With 33.7 per cent minority shareholding in Jio, RIL could fulfill IPO requirements by listing 10 per cent of Jio. While RIL would retain majority control after the listing, our analysis suggests the Indian stock market imputes a holdco discount of 20-50 per cent to a listed subsidiary in arriving at a holdco's fair value,” it said.

It expects the entire IPO to be an Offer for Sale (OFS) by minorities.

Both domestic as well as foreign investors, typically, prefer spin offs in India as holdco discounts are 20-50 per cent in India but steeper (50-70 per cent) for conglomerates in Korea and Taiwan.

The large retail investor mobilisation, Jefferies said, in the case of an IPO is another concern. “The lower controlling stake in Jio on spin off could be addressed by buying a part of the shares offered by private equity funds after the spin off,” it said.

RIL outlook

On the bourses, shares of Reliance Industries hit an all-time high of Rs 3,217.9 per share on July 8, 2024. RIL share price has gained 8.7 per cent over the past one month, and is up 22.5 per cent so far this year. By comparison, the benchmarks have added around 11 per cent year-to-date.

Global brokerage Morgan Stanley predicts India’s biggest oil refining and retail firm will invest $60 billion in the next 10 years.

On its part, RIL Chairman Mukesh Ambani, in the shareholders’ meeting last year, had said the company had cumulatively invested more than $150 billion in the past 10 years — higher than any other company in India and comparable to the leading businesses across the world. READ