All eyes on Jio Fin price discovery, special session by bourses on Thursday

Street estimates range from Rs 150-240 per share for RIL's financial services arm

Bourses will conduct a special pre-trade price discovery session on Reliance Industries (RIL) on Thursday to determine the share price of Jio Financial Services, which is expected to list on the bourses separately within the next two months. Shares of RIL on Wednesday closed at a new all-time high of Rs 2,840, valuing the company at Rs 19.2 trillion. All RIL shareholders at the end of Wednesday’s trade will be eligible to get one share of Jio Fin for every one share of RIL (as the ex-date has been set as July 20).

Jio Fin’s share price will be the difference between RIL’s Wednesday’s close and the price arrived at after Thursday’s pre-trade session. For instance, if RIL’s price after the pre-trade session is Rs 2,600, then one share of Jio Fin will be priced at Rs 240 (2,800-2,600). Street estimates range between Rs 150 and Rs 240 for Jio Fin’s fair value. The price discovered on Thursday will remain the constant price till Jio Fin’s listing, which is a few months down the line. Jio Fin will notionally be part of the Nifty, Sensex and various other indices that RIL is part of until its listing. Jio Fin will be removed after three days (T+3) of its listing. This is a globally followed practice to enable exchange traded funds (ETFs) navigate the demerger exercise without having to undergo any churn.

“Based on the core net-worth of Jio Fin (Rs 14,000 crore) and value of the stake in RIL with a price-to-book range of 3-5 times as well as holding company (holdco) discount of up to 40 per cent (based on benchmarks), we value Jio Fin in the range of Rs 90,000-150,000 crore that implies Rs 134-224 per share in RIL's sum of the parts. We incorporate Rs 179/share as base case valuation for Jio Fin in our sum of the parts,” Jefferies had said in a note in April.

Jio Fin holds 6.1 per cent stake in RIL, which was valued at Rs 1.17 trillion at last close.

In an earlier note, analysts at Nomura had said the demerger will help Jio Fin attract different sets of investors, strategic partners and lenders having specific interests in the financial services business. “As a separate entity, Jio Fin would be able to have higher leverage in line with industry standards,” it has said.