Jefferies noted that Reliance Jio Infocomm Ltd, the telecom arm of Reliance Industries Ltd, may undergo a substantial Reliance Jio’s IPO in 2025, potentially valuing it at over Rs 9.3 lakh crore.
“Bhaskar Chakraborty of Jefferies suggested that Jio’s recent tariff hikes, coupled with unchanged feature phone tariffs, emphasize monetization and subscriber market share growth, potentially paving the way for a public listing in CY25. Jefferies projected a $112 billion valuation for Jio’s potential listing, foreseeing a 7-15 percent upside for Reliance Industries shares. The brokerage maintained a ‘buy’ rating on RIL stock with a target price of Rs 3,580 per share, indicating over 13 percent potential upside from the current closing price of Rs 3,164. RIL’s shares have surged more than 22 percent year-to-date, outperforming the Nifty 50’s 12 percent gain.”
Jefferies suggested that the entire IPO could involve a minority shareholders’ offer for sale. RIL might consider spinning off and listing Jio post price discovery, favored by both domestic and foreign investors. In August 2023, Reliance Industries spun off Jio Financial Services and listed it through a price discovery process. In June, Reliance Jio Infocomm introduced new tariff plans featuring unlimited data, signaling its focus on monetization and expanding subscriber base. Bharti Airtel and Vodafone Idea subsequently unveiled similar tariff plans.
“For Jio’s potential listing in CY25, the company has two options: IPO or a spin-off similar to Jio Financial Services (JFS), Jefferies noted.”
Jefferies highlighted concerns including the holdco discount of 20-50% in India, which widens to 50-70% for conglomerates in Korea and Taiwan. They also noted worries about substantial retail investor mobilization during an IPO. Addressing the issue of a lower controlling stake in Jio post spin-off, Jefferies suggested acquiring shares from private equity funds involved in the spin-off.
It further stated, “This approach would circumvent the holdco discount, facilitating enhanced value realization for RIL shareholders. Following listing, the ownership stake in Jio would decrease to 33.3%, contrasting with the 45.8% stake in the recently spun-off JFS. Given the robust performance of RIL and JFS stocks post-event and the minority stake in JFS, the ownership may lean towards opting for the spin-off method for Jio.”
Jio’s public listing possible in 2025:
Jefferies suggests that Jio’s emphasis on monetization and expanding subscriber market share is underscored by leading recent tariff hikes while maintaining unchanged featurephone tariffs, paving the way for a potential public listing in 2025. Reliance Industries may consider IPO or a spin-off similar to Jio Financial Services (JFS).
The IPO option is preferable despite holding company discounts.
Reliance, with a 33.7% minority stake in Jio, meets IPO requirements and may list 10% of Jio. The IPO could involve an Offer for Sale by minorities after peak capex is completed. However, dedicating 35% of the IPO to retail investors necessitates substantial investor engagement. Despite Reliance retaining majority control post-listing, a holding company discount of 20-50% may apply to the listed subsidiary, affecting its perceived fair value.
In a vertical spin-off scenario, Jio could list post price discovery, avoiding a holding company discount and enhancing value for Reliance shareholders. However, this would reduce ownership stakes, with Reliance’s stake in Jio dropping to 33.3% at listing, reflecting shareholders’ adjusted holdings from Reliance Industries’ 66.3% stake.
Existing Reliance shareholders will likely prefer the spin-off route due to its advantages. Jefferies notes that both domestic and foreign investors favor the spin-off route for Jio’s potential listing. Reliance Industries could address the reduced controlling stake in Jio post-spin-off by purchasing shares offered by private equity funds afterward.
Disclaimer: The views and recommendations mentioned above are those of individual analysts or broking companies, and not of Mint. We advise investors to consult certified experts before making any investment decisions.
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