Reliance Industries, which is considered the most valuable company in India, is contemplating the idea of listing its telecom arm, Jio, on the public market by 2025. This decision comes after Jio’s recent efforts to increase its revenue and market share through tariff hikes.
Jefferies, a research firm, suggests that a spinoff of Jio could be more favorable than an initial public offering (IPO) due to concerns about the holding company discount in the Indian market. Listed subsidiaries often trade at a discount of 20-50% when held by a parent company, which could undervalue Jio within Reliance’s overall market cap if it were to go public through an IPO.
With over 475 million wireless subscribers, Jio managed to raise $20 billion in 2020 from investors such as Meta, Google, and General Atlantic. During the 2020 investments, Jio was valued at $58 billion, while Bank of America estimated its value at $107 billion. On the other hand, Jio’s main competitor in India, Airtel, has a market cap of nearly $98 billion.
If Reliance decides to spin off Jio, shareholders would receive a proportionate ownership stake in the company. This move could lead to a more accurate standalone valuation of Jio and reduce the controlling stake of Reliance’s owners from 66.3% to 33.3%.
Last year, Reliance surprised the market by demerging its financial services arm and listing Jio Financial Services separately. Since the separation in August 2023, Jio Financial Services’ stock has surged by 40%, outperforming the Nifty index by 1,100 basis points. Jefferies believes that the success of Jio Financial Services’ spinoff could serve as a blueprint for potential listings of Jio and Reliance Retail.
According to Jefferies analysts, a public listing of Jio could value the company at $112 billion, potentially resulting in a 7-15% increase in Reliance’s stock price. They estimate a fair value of 3,580 rupees per share for Reliance in a spinoff scenario, compared to 3,365 rupees for an IPO, taking into account a 20% holding company discount.
Overall, the potential listing of Jio could have significant implications for both Reliance Industries and the Indian telecom market as a whole. Investors will be closely monitoring any developments regarding this decision and its impact on the valuation and performance of both companies.
