Overview:
- Reliance Industries is considering spinning off its telecom arm Jio for a public listing, possibly by 2025, according to Jefferies.
- This move is favored over an initial public offering (IPO) due to concerns about the holding company discount that affects listed subsidiaries in India.
Reasons for Spinoff:
- Market Discount: Listed subsidiaries often trade at a 20-50% discount when held by a parent company in India.
- Valuation Concerns: Reliance may achieve a more accurate valuation for Jio as a standalone entity rather than under its market cap.
Jio’s Financial Background:
- Jio serves over 475 million wireless subscribers and raised approximately $20 billion in 2020 from investors like Meta, Google, and others.
- Valued at $58 billion pre-money during the 2020 investments, with varying valuations since then (e.g., Bank of America at $107 billion).
Potential Impact:
- A spinoff would distribute proportionate ownership in Jio to Reliance shareholders, reducing Reliance’s controlling stake from 66.3% to 33.3%.
- Analysts project that a public listing could value Jio at $112 billion, potentially leading to a 7-15% upside for Reliance’s stock.
Strategic Moves:
- Reliance previously demerged its financial services and listed Jio Financial Services, which has performed positively since August 2023.
- The success of Jio Financial Services’ spinoff serves as a model for potential listings of Jio and Reliance Retail.
Financial Estimates:
- Jefferies estimates a fair value of 3,580 rupees per share for Reliance in a spinoff scenario, compared to 3,365 rupees in an IPO scenario, factoring in a 20% holding company discount.
Conclusion:
- The potential spinoff of Jio could unlock significant value for Reliance shareholders by providing a clearer valuation and possibly boosting stock performance.
- This move aligns with Reliance’s strategy to optimize its holdings and capitalize on investor appetite for telecom and retail sectors in India.
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