The share price of Reliance Industries has increased by 22% so far this year. The increase in Reliance’s share price might also be attributed to the flow of news and analyst expectations surrounding the company’s telecom business, Jio.
According to a recent forecast by Jefferies India Ltd., Jio may list at a valuation of $112 billion, According to Jefferies, the fair value of Reliance Industries’ shares would be Rs3,580, which would indicate a 15% increase, assuming that Jio’s company is spun off. According to Jefferies, in the basic case, the fair value would be Rs3,365 if Reliance Industries decides to list Jio through an initial public offering (IPO) (factoring 20% holding company discount).
The possible public listing of Jio in 2025:
According to Jefferies, Jio’s emphasis on monetization and growing subscriber market share is demonstrated by the fact that, in contrast to previous years, it spearheaded the recent pricing hikes while maintaining featurephone rates at the same level. According to Jefferies, these actions make a case for a potential public listing in 2025. As it did with Jio Financial Services (JFS), Reliance Industries may consider an initial public offering (IPO) or splitting off Jio.
The IPO path is preferable, but it requires holding company discounts.
Reliance may list 10% of Jio provided it satisfies the IPO criterion with a 33.7% minority holding in the company. Since peak capex is behind, an IPO might alternatively be an offer for sale made by minorities. However, a large amount of investor mobilization will be required because the retail sector receives 35% of an IPO. Even though Reliance Industries would retain majority control after the listing, in the event of an IPO, the stock market would grant a listed subsidiary a holding company discount of 20–50% when calculating the holding company’s fair value.
Vertical Spin-off route: In this scenario, Jio can list the following price discovery. Its benefit is that no holding company discount is applied, which allows for better value unlocking for Reliance shareholders at the expense of a smaller ownership position. After listing, Reliance stockholders will receive their proportionate shareholding in Jio, adjusted for Reliance Industries’ 66.3% investment in the latter, bringing the owner’s stake down to 33.3%.
Considering the benefits, current Reliance stockholders will still choose the spinoff option. According to Jefferies, investors—both domestic and foreign—seem to favor Jio’s possible spin-off route for a listing. Reliance Industries may be able to make up for its reduced controlling position in Jio following the spin-off by purchasing a portion of the shares that private equity groups will be offering.
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