Jio Financal Services beats market expectations, valued at Rs 261.85 per share

Jio Financial Services Limited, the demerged financial services unit of billionaire Mukesh Ambani-led conglomerate Reliance Industries Ltd, took the market by surprise after its share price touched Rs 261.85 per share on the National Stock Exchange—much higher than analysts' estimate—at the end of a special pre-open call auction session on the stock exchanges on Thursday. 

Market analysts had initially estimated the share price of the new entity to be valued between Rs 160 and Rs 190 per share. 

Meanwhile, the share price of the parent company Reliance Industries fell to Rs 2,580 in the special session that took place for price discovery, on July 20, from 9–9:45 am, taking in the impact of the demerger. However, it later rallied up to 2% after the normal trading resumed post 10 am.

The exercise was conducted to value Jio Financial Services Ltd. 

Jio Financial Services Ltd (JFSL) falls under Ambani’s new plan to tap the growing demand for financial services in the country, including lending, insurance, digital broking, and asset management. The financial arm was formed after the demerger of Reliance Strategic Investments Ltd (RSIL), which was renamed Jio Financial Services Limited.  

JFSL is expected to list on the bourses by October 2023.

According to the scheme of arrangement, shareholders of Reliance Industries Ltd (RIL) will get one share of the demerged entity for every share held by them in the conglomerate.

The entry, pilots & impact 

JFSL’s entry into the market is touted as a major challenge to not just established financiers such as Bajaj Finance, HDFC Bank, and Kotak Finance in the retail lending sector but also major fintech players such as Paytm and PhonePe.

The new entity, which will be lead by banker Hitesh Sethia of McLaren Strategic Ventures, is expected to begin with consumer and merchant loans and later incubate insurance, payments, online broking, and asset management.  

Meanwhile, Mukesh Ambani’s daughter Isha Ambani, former Comptroller and Auditor General of India Rajiv Mehrishi, and Reliance executive Anshuman Thakur will sit as non-executive directors at the JFSL board, while Sunil Mehta, chief executive of Indian Bank’s Association, and Bimal Manu Tana, Partner Affairs Leader at PwC India, will operate as independent directors. 

KV Kamath was earlier appointed as the non-executive chairman of JFSL. 

JFSL comes with a major war chest of customer data and a nationwide omni-channel presence of Reliance’s consumer businesses. Besides, RIL operates the nation's largest telecom sector with over 420 million subscribers and has 30% share in the home broadband market (9 million customer base). 

Macquarie expects JFSL to be the fifth-largest financial services company by net worth with a market value of Rs 10.84 lakh crore.

“As Jio already has a 20 million+ customer ecosystem from Reliance’s retail and telecom, it is set to leverage them to collect data. Reliance’s recent acquisition, Metro Cash & Carry, will add 3 million merchants' data,” said Manish Mishra, member of capital market committee at PHD Chamber of Commerce and Industry. 

JFSL will also have a key advantage of the low cost of funds due to the group’s higher credit ratings, higher access to capital markets, and a planned ownership of 6.1% stake in Reliance Industries, a Jefferies report highlighted.

In June 2023, Reliance launched a pilot project in consumer durables at select Reliance Digital outlets before a full-fledged launch of the new services. 

Under the pilot programme, customers buying electronic gadgets from a few Reliance Digital outlets of the total 17,000 will get an option to buy home appliances and electronic gadgets on EMI, a report in The Economic Times said.

While JFSL has a headstart, in terms of distribution and data, experts point out the challenges a large corporation like Jio may face in the heavily regulated financial services sector compared to nimble fintech startups.

"A banking licence is far away for Jio. The group has a payments banking licence, which restricts lending activity. Therefore, it will play on its NBFC licence. But that's not enough. In the past, big corporate houses like Tatas and Aditya Birla who have had a presence in the NBFC space made no big disruption. JFSL will have to come up with an innovative offering to make a difference," said a stock market analyst.

Parijat Garg, former VP at CRIF India, and a digital lending expert, partially agrees to this, but adds that Jio might be better placed to execute the service compared to other corporate houses.

"Jio can create more attractive offers and a unified convenient option for the consumers to buy and access finance within Jio's universe. Tata Neu is still struggling to create a unified experience across Tatas because of legacy systems, but Jio might be better placed to execute this,” he said.

Speaking specifically about the insurance space, Dr Senthil R, Business Head at insure tech firm AssetPlus, said insurtech startups should not worry excessively about the entry of Jio, as they have been challenging traditional players for years and have been able to carve a niche for themselves in the market.

"They can leverage their agility and flexibility to offer customised products and services to customers, which could not be matched by large incumbents. Moreover, startups have the advantage of focusing on specific niches and building a brand around it," he said.

(The copy was updated with background details and expert views.)