Jio Financial gains 3% as JV with BofA seen boosting capital base, growth

Reliance group stock Jio Financial Services rallied 3 per cent in intraday deals on Thursday, August 13, following the announcement of a joint venture with the wholly-owned subsidiary of Bank of America (BofA).

 

Jio Financial Services share price gained 3.27 per cent to hit the day's high of ₹263.35 on the BSE. As of 10.47 AM, it traded nearly 1 per cent up at ₹257.40 while BSE Sensex was down 0.3 per cent at 77,741. A total of 32.6 million shares of the company had changed hands on BSE and NSE combined at the time of writing this report.

 

 

The blue-chip stock with a market cap of ₹1.7 trillion has risen 11 per cent in the last three months. However, it is down 13 per cent on a year-to-date basis. 

 

On Wednesday, the two companies announced that they have signed a definitive agreement whereby BofA will acquire up to a total of 49.9 per cent interest as a joint venture partner in Jio Credit (JCL), a subsidiary of Jio Financial, through a preferential allotment of equity shares and warrants.

 

NB Holdings USA will subscribe to up to 42.9 million equity shares of JCL at a face value of ₹10 each, representing 26.5 per cent of Jio Credit's post-issue paid-up capital, for an aggregate consideration of up to ₹6610 crore. 

 

In addition, NB Holdings will subscribe to up to 75.7 million warrants for an aggregate consideration of ₹11,660 crore. Each warrant will be convertible into one equity share within 18 months of allotment, with 25 per cent of the warrant consideration payable upfront and the remaining 75 per cent upon conversion. On full conversion of the warrants, NB Holdings’ ownership in JCL will increase to 49.9 per cent.

 

The deal size is about 2.5 times the net worth of Jio Credit, which is estimated at ₹7,259 crore. 

 

Pursuant to the transaction, Jio Credit's Board of Directors will have equal representation from both Jio Financial and BofA. 

 

The investment is expected to enable BofA to deepen its presence in India’s rapidly growing financial services market while leveraging Jio Financial's strong local expertise, digital capabilities and differentiated market positioning.

 

MOFSL on Jio Financial-BofA deal

Analysts at Motilal Oswal Financial Services said that they view the proposed investment positively, as the ₹18,270 crore capital infusion provides substantial balance sheet headroom for Jio Credit to scale up its lending franchise. 

 

"The partnership with BofA also adds a strategic value through potential access to global expertise across risk management, technology and product development while strengthening JCL’s competitive positioning in the Indian financial services market," they said.

 

The brokerage also expects earnings momentum to strengthen every year for Jio Credit, driven by a disciplined scale-up of business and a strong focus on profitability. It estimates AUM CAGR of 85 per cent and PAT CAGR of 145 per cent over FY26-FY28E, with RoA/RoE of 1.9 per cent/10.4 per cent in FY28E.

 

MOFSL has a 'buy' rating on Jio Financial with a target price of ₹256, signalling 23 per cent upside from last close.

 

Disclaimer: Views and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.