Reliance May Spin Off Jio at $112 Billion Valuation by 2025, Says Jefferies

Reliance Industries, India’s most valuable company, is considering a spinoff of its telecom arm, Jio, for a public listing as early as 2025, according to a research note by Jefferies. This move is seen as favorable among investors compared to an initial public offering (IPO), especially following Jio's recent focus on monetization and market share gains, indicated by its leadership in tariff hikes.

The spinoff option is gaining traction due to concerns over the holding company discount prevalent in the Indian market, where listed subsidiaries often trade at a 20-50% discount when held by a parent company. While an IPO would allow the Mukesh Ambani-led Reliance to maintain majority control of Jio, it risks undervaluing the telecom giant within Reliance's overall market capitalization.

Jio, serving over 475 million wireless subscribers, raised about $20 billion in 2020 from investors including Meta, Google, General Atlantic, KKR, Silver Lake, Mubadala, TPG, Abu Dhabi Investment Authority, Intel, and Qualcomm. At the time of these investments, Jio was valued at $58 billion pre-money. In comparison, Airtel, Jio's chief rival in India, currently has a market capitalization of nearly $98 billion. Last year, Bank of America valued Jio at $107 billion.

A spinoff would result in Reliance shareholders receiving proportionate ownership in Jio, potentially leading to a more accurate standalone valuation. This would also reduce the controlling stake of Reliance's owners from the current 66.3% to 33.3%.

Reliance has long been anticipated to list Jio and Reliance Retail, the nation’s largest retail chain. In a surprising move last year, Reliance demerged its financial services offering and listed Jio Financial Services. Since its August 2023 separation, Jio Financial Services' stock has surged 40%, while Reliance has outperformed the Nifty index by 1,100 basis points.

Jefferies stated that the success of Jio Financial Services’ spinoff last year could serve as a model for how the firm views potential listings of Jio and Reliance Retail.

Analysts at Jefferies 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.

The potential spinoff of Jio aligns with Reliance's strategic moves in the market, addressing investor concerns and maximizing value. By opting for a spinoff, Reliance aims to leverage the more favorable market conditions and ensure a more precise valuation of its telecom arm, benefiting shareholders and bolstering its financial standing.