Jefferies Suggests Reliance Could IPO Jio Next Year with a Valuation of $112 Billion

India’s leading conglomerate, Reliance Industries, holds the possibility of separating its telecom branch, Jio, and introducing it to the stock market by 2025, as per insights from Jefferies. The recommendation leans towards a spinoff over a direct IPO, following Jio’s aggressive plans for monetization and expanding its market footprint, marked by its pivotal tariffs adjustments.

The idea of a spinoff is gathering momentum against the backdrop of the holding company discount issue present in the Indian equity market. This phenomenon typically leads to listed subsidiaries being undervalued by 20-50% compared to independent entities. Despite an IPO potentially allowing Reliance, under Mukesh Ambani’s leadership, to keep a major stake in Jio, it could result in the telecom sector’s underrepresentation in Reliance’s overall valuation.

Commanding over 475 million wireless consumers, Jio attracted roughly $20 billion in funding in 2020 from a roster of global investors, including tech giants like Meta and Google, alongside investment firms such as General Atlantic and KKR. Valued at $58 billion before these investments, Jio directly competes with Airtel, valued near $98 billion. Last year, Jio’s valuation soared to $107 billion according to Bank of America.

A spinoff scenario will allow Reliance’s investors to gain direct shares in Jio, leading to a potentially more precise valuation independently of the parent firm. This move would also dilute the Ambani family’s stake in Jio to 33.3%, a decrease from their current 66.3% holding.

The strategy to publicly list Jio and Reliance Retail, India’s supreme retail network, has been on Reliance’s agenda for some time. Last year, the company unexpectedly demerged its finance sector and publicized Jio Financial Services. Post its August 2023 demerger, Jio Financial Services witnessed a 40% jump in its stock value, with Reliance itself exceeding the Nifty index by 1100 basis points.

Given the successful demerger of Jio Financial Services, Jefferies suggests it as a benchmark for Reliance’s approach towards the potential market listings of Jio and Reliance Retail in the future.

According to Jefferies, taking Jio public could place its valuation at $112 billion, providing a 7-15% increase to Reliance’s share price. They anticipate a valuation of 3,580 rupees per Reliance share in the event of a spinoff, compared to an estimated 3,365 rupees in the case of an IPO, with a 20% discount for holding companies factored in.