Jefferies assigns Rs 134-224 per share for Jio Financial Services- QHN

Jefferies has assigned a value between Rs 134 and Rs 224 per share for Reliance Industries (RIL)’s soon-to-be-hived-off unit Jio Financial Services (JioFS). The brokerage expects the financial services firm to get listed by September 2023. Existing shareholders will receive one share of JioFS for every one share held in RIL.

“Based on the core net-worth of Jio-FS (Rs 14,000 crore) and value of the stake in RIL (Rs 1 trillion) with a price-to-book range of 3-5 times as well as holding company (holdco) discount of up to 40 per cent (based on benchmarks), we value JioFS in the range of Rs 90,000-150,000 crore that implies Rs 134-224 per share in RIL’s sum of the parts (SoTP). We incorporate Rs 179/share as base case valuation for JFS in our SoTP,” said Jefferies in a note while upgrading RIL’s target price to Rs 3,100 per share.

Shares of RIL last traded Rs 2,330 per share.

“Stock trades near our bear case valuation and offers favorable risk-reward,” Jefferies said.

According to Jefferies, JioFS has net-worth of about Rs 28,000 crore. In addition, the company holds 6.1 per cent stake in RIL, which is currently worth over Rs 96,000 crore

 “Still from a regulatory perspective, core net-worth may be about Rs 14,000 crore ($1.7 billion) once the cost of investment in RIL is deducted (in excess of 10 per cent of net-worth). Therefore, JioFS may over the next few years look to raise capital to fund growth or support cash-backed M&A as the need to write-off goodwill will bring down capital,” Jefferies said.

In another note, Nomura has said “the demerger would help the financial services business to attract different sets of investors, strategic partners and lenders having specific interests in the financial services business. As a separate entity, JioFS would be able to have higher leverage in line with industry standards. As JioFS scales up, it can drive value unlocking given higher multiples for peers in these industries.”

Nomura too has a buy rating on RIL with a target price of Rs 2,850 per share.

Shares of RIL are down nearly 10 per cent on a year-to-date basis, underperforming the Nifty which is down less than 5 per cent.

The listing of JioFS is seen as an important event for RIL’s sagging stock price.

Nomura says the recent decline in RIL shares is on account of an “index-related selloff” and the outlook across its businesses remains strong.

“The listing and value unlocking from RIL’s financial services business in the coming months will be a key event for the stock. We also expect the company to lay down a strong roadmap for growth in the financial sector in the coming AGM. While significant efforts are needed to scale the financials business, given RIL’s robust execution, capacity to invest, industry-leading retail infrastructure and leading market share across the retail and telecom industry, it appears likely that RIL will dominate the industry,” Nomura has said.