The much-awaited spinoff of Jio Financial Services Ltd. from Reliance Industries Ltd. saw the market ascribe a price of Rs 261.85 to it on the National Stock Exchange. That gives it a market value of a little over $20.2 billion, or Rs 1.66 lakh crore, after the demerger.
Mukesh Ambani's fintech company is yet to list. Since RIL has one of the largest shareholder bases, crediting shares into investors' demat accounts and subsequent trading on the exchanges will take some time.
The value ascribed through the special pre-open session to Jio Financial on Thursday may not be entirely correct since that will also be determined separately through a similar pre-open session at the time of its listing.
Even so, the current price of Rs 261.85 per share appears stretched since it is the difference between Reliance's Wednesday closing price and the value determined in the special session.
Inadequate Financials
Reliance released the financials of Jio Financial (formerly Reliance Strategic Investments Ltd.) on Wednesday. The company apportioned the cost of acquiring demerged shares of Jio Financial and Reliance in a ratio of 4.68 to 95.32.
According to Income Tax provisions, the cost of acquisition in the case of a demerger will be the net worth of the resulting company (Jio Financial) divided by the net worth of the demerged company (Reliance).
Based on the standalone financials, the net worth of Jio Financial is expected to be around Rs 24,052 crore, including paid-up equity of Rs 6,353.1 crore. And the computed net worth of RIL, excluding Jio Financial, is around Rs 4.9 lakh crore.
According to the disclosures made to the stock exchanges:
Jio Financial's consolidated total income from operations for the first quarter ended June stood at Rs 414.1 crore and net profit at Rs 360.3 crore.
Standalone reserves were at Rs 17,699 crore as of March and at Rs 1.07 lakh on a consolidated basis.
The audited balance sheet for the year ended March 2023 has yet to be disclosed.
Valuations
Based on the Rs 261.85 per share price ascribed after the special session, Jio Financial is valued at Rs 1.66 lakh crore. That's about four times its book value, said Sushil Choksey, chief executive at Indus Equity Advisors, to BQ Prime.
By comparison, Bajaj Finance Ltd., one of India's biggest non-bank lenders, trades at six times its book value.
Investors should wait till the December quarter before judging Jio Financial's valuation, said Choksey. It will be difficult to get multiples similar to Bajaj Finance in the short term, he said.
At the multiple cited by Choksey, Reliance's fintech company's book value works out to Rs 41,589 crore, according to BQ Prime calculations. That's about Rs 65.5 per share.
What that means is that the market is valuing RIL's 41.28 crore treasury shares, or 6.1% stake in the parent, held by Jio Financial at an 80% discount to the current market price. Or almost equivalent to the book value at which it was transferred to Jio Financial.
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