Reliance Jio IPO: RIL could list telecom arm by 2025 at $112 bn valuation, says Jefferies

Reliance Jio, backed by Mukesh Ambani's Reliance Industries Ltd (RIL), could go public next year at a valuation of $112 billion, according to global brokerage firm Jefferies. The brokerage's optimistic outlook hinges on Jio's recent tariff hikes aimed at enhancing monetization and expanding its subscriber market share.

“These moves create a case for a possible public listing in CY25 (calendar year 2025) in our view. RIL could look to IPO (initial public offer) or spin off Jio, as it did with Jio Financial Services (JFS),” Jefferies said, noting that institutional investors favour a spin-off to bypass the typical holding company discount of 20-50%.

Shares of the index heavyweight traded marginally higher at ₹3,173.20 apiece at 1221pm on Thursday on the National Stock Exchange. The stock has risen 22% year to date, with news flow and analysts expectations around Reliance's telecom arm Jio contributing to the upside in RIL's share price.

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Jefferies highlighted that Reliance Industries' decision to either spin off or launch a public offering of India's largest telecom provider will balance the potential unlocked value against the downside of a lower controlling stake.

IPO is better but entails holding company discounts

Although the large retail investor mobilization needed for an IPO is a concern, the lower controlling stake in Reliance Jio during a spin-off could be addressed by acquiring a portion of the shares offered by private equity funds, it said in the note on Thursday.

“Jio could list at a $112 bn valuation, 7-15% upside to RIL. Assuming Jio is spun off from RIL's stable, our fair value for RIL would be ₹3,580, implying about 15% upside,” the report added.

Conversely, if the IPO route is chosen, RIL's fair value would fall to ₹3,365 in the base case due to the 20% holding company discount.

If Reliance opts for an IPO, with 33.7% minority shareholding in Jio, it could meet regulatory norms by listing 10% of Jio through an offer for sale by minority shareholders. Currently, RIL holds 66.3% in Jio Platforms, the holding company of Reliance Jio, while Facebook, Google, and private equity investors hold 10%, 7.7%, and 16%, respectively.

Jefferies flagged that 35% of an IPO is reserved for the retail segment, which would require large mobilization from retail investors. The firm noted that any unsubscribed retail portion could be allocated to high net-worth individuals (HNI) or qualified institutional buyers (QIB) based on their oversubscription.

It also also pointed out that even though RIL would retain majority control post-listing, the Indian stock market typically imposes a 20-50% discount on the value of listed subsidiaries when determining a holding company's fair value.

“With the Indian market imputing a 20-50% holdco (holding company) discount to listed subsidiaries, controlling owners' less-than-majority stake in JFS at the time of the spin-off, and the strong performance of RIL and JFS stock post-spin-off, we believe Jio could be spun off,” the report said.

Vertical spin-off route

Listing post-spin-off and price discovery could also be considered, as RIL shareholders would receive their proportionate shareholding in Jio adjusted for RIL's 66.3% stake, avoiding the holding company discount and enabling better value unlocking for shareholders.

“The owner's stake in Jio would fall to 33.3% on listing. We note the owner's stake in the recently spun-off JFS was 45.8% on listing. The strong performance of the stock prices of RIL and JFS since the event, as well as the less than majority stake of the owners in JFS, may tilt the owner to adopt the spin-off route for Jio,” Jefferies said.

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In March last year, RIL spun off its financial services business—Jio Financial Services—which underwent price discovery in July at ₹261.85 per share and began trading in August.

In the subsequent months, the promoter group raised its stake from 45.8% to 47.12%. Shares of Jio Financial have surged about 40% over 10 months from the discovered price since listing, while RIL's stock price has risen 40% over the same period, outperforming the Nifty by 1100 basis points, according to Jefferies.

Reliance shareholders nevertheless will likely prefer the spin-off route looking at the positives. 

Jefferies said that investors, domestic as well as foreign, appear to favour the spin off route for Jio's potential listing. For Reliance Industries the lower controlling stake in Jio on spin off could be addressed by buying a part of the shares offered by private equity funds after the spin off.

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