Reliance Industries, India's most valuable company, is considering a major strategic move that could reshape its telecom business. According to Jefferies, a research note suggests that Reliance may spin off its telecom arm, Jio, for a public listing as early as 2025. This move, driven by investor preference, could see Jio valued at a staggering $112 billion.
The Potential Spinoff of Jio
Why a spin-off over an IPO?
Investors are increasingly favouring the spinoff route over an initial public offering (IPO) for several reasons:
♦ Holding Company Discount: In the Indian market, listed subsidiaries often trade at a significant discount, ranging from 20% to 50%, when held by a parent company. By providing a more realistic standalone valuation for Jio, a spinoff might lessen this problem.
♦ Control and Valuation: While an IPO would allow Reliance to maintain majority control over Jio, it risks undervaluing the telecom giant within Reliance’s overall market cap.
Jio’s Market Position and Recent Investments
Jio is a dominant player in the Indian telecom sector, serving over 475 million wireless subscribers. The company raised approximately $20 billion in 2020 from high-profile investors including Meta, Google, General Atlantic, KKR, Silver Lake, Mubadala, TPG, the Abu Dhabi Investment Authority, and Intel and Qualcomm. These investments valued Jio at $58 billion pre-money.
For more, click: Reliance Becomes The First Indian Company To Reach Rs 20 Lakh Crore M-Cap
Comparative Valuations
► Rival Comparison: Jio’s chief competitor, Airtel, has a market cap of nearly $98 billion.
► Bank of America Valuation: Last year, Bank of America valued Jio at $107 billion.
► Jefferies Projection: Jefferies analysts estimate that a public listing could value Jio at $112 billion, potentially driving a 7–15% upside for Reliance’s stock. They project a fair value of 3,580 rupees per share for Reliance in a spinoff scenario, compared to 3,365 rupees for an IPO, assuming a 20% holding company discount.
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Impact on Reliance Shareholders
A spinoff would grant Reliance shareholders proportionate ownership in Jio, leading to a more accurate standalone valuation and potentially enhancing shareholder value. The controlling stake of Reliance’s owners would be reduced to 33.3%, down from the current 66.3%.
Lessons from Jio Financial Services
The success of Jio Financial Services’ spinoff last year could serve as a model for the potential listing of Jio and Reliance Retail. Since its August 2023 separation, Jio Financial Services’ stock has surged by 40%, and Reliance has outperformed the Nifty index by 1,100 basis points.
Future prospects for Reliance and Jio
The potential spinoff of Jio represents a significant strategic shift for Reliance, emphasising the company's focus on unlocking value for shareholders. If successful, it could pave the way for similar moves with other subsidiaries, such as Reliance Retail.
For more on this, read: Reliance To Launch Shein In India: A Strategic Move In Fast Fashion
Conclusion
Reliance Industries' potential spinoff of Jio, as suggested by Jefferies, is a strategic move that could significantly enhance shareholder value and offer a more accurate standalone valuation for Jio. With Jio's strong market position and substantial recent investments, the anticipated $112 billion valuation underscores the telecom giant's potential. This move reflects a broader trend in the Indian market towards optimising subsidiary valuations and could set a precedent for future listings by Reliance.
Inputs: Agencies
Image Source: Multiple agencies
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