Jefferies, a global financial services firm, suggests in a recent note that Reliance Jio Infocomm Ltd, the telecom arm of Reliance Industries Ltd, may be poised for a significant initial public offering (IPO) in 2025. This potential IPO could value Reliance Jio at over ₹9.3 lakh crore (approximately USD 112 billion).
Valuation and Impact on Reliance Industries Share Price:
The Jefferies note indicates that a Reliance Jio IPO could lead to a 7-15% increase in the share price of its parent company, Reliance Industries Ltd. This projection is based on a valuation of USD 112 billion for Reliance Jio.
Spin-off Scenario and Fair Value Estimations:
If Reliance Jio is spun off from Reliance Industries and subsequently listed, Jefferies estimates the fair value of Reliance Industries’ stock to be ₹3,580. However, if the IPO proceeds without a spin-off, the fair value is estimated to be ₹3,365, considering a 20% holding company discount.
Potential for an Offer for Sale by Minority Shareholders:
Jefferies proposes that the entire IPO could consist of an offer for sale by minority shareholders. This approach would involve Reliance Industries spinning off Jio and listing it after a price discovery process. Both domestic and foreign investors seem to favor this spin-off route for the Jio listing.
Bull Case Scenario and Upside Potential:
In a more optimistic scenario, Jefferies values Reliance Industries’ stock at ₹3,700, suggesting an 18% upside potential.
Operational Considerations and Focus on Monetization:
Reliance Jio has been proactive in announcing tariff hikes, although it maintained feature phone tariffs unchanged. This strategic move indicates a focus on monetization and gaining subscriber market share.
Possible Public Listing in CY25:
Jefferies views these recent developments as a potential catalyst for a public listing of Reliance Jio in 2025. The firm suggests that Reliance Industries might pursue either an IPO or a spin-off, similar to its approach with Jio Financial Services (JFS).
Shareholder Implications and Value Unlocking:
According to Jefferies, Reliance Industries shareholders would receive a proportionate shareholding in Reliance Jio, adjusted for RIL’s 66.3% stake in the latter. This arrangement could bypass the holding company discount and enhance value unlocking for RIL shareholders. The owner’s stake in Jio would decrease to 33.3% upon listing.
Fulfilling IPO Requirements and Retaining Majority Control:
With a 33.7% minority shareholding in Reliance Jio, Reliance Industries could meet IPO requirements by listing 10% of Jio. This approach would allow RIL to retain majority control even after the listing.
