Jio Financial Services boasts implied market cap of ₹1.6 lakh crore; Is this high valuation justified?

Post demerging with RIL on Thursday, Jio Financial Services (JFSL) boasts off an implied market capitalisation of ₹1.6 lakh crore, that’s way behind Bajaj Finance m-cap of ₹4.59 lakh crore, but significantly higher to its contemporaries in the space.

Shares of Jio Financial will remain at ₹261.85 until it lists on the bourses. However, upon listing, Jio Financial Services will surpass Cholamandalam Investment and Finance which has an m-cap of over ₹95,000 crore, being the second largest NBFC presently.

“Jio financials is effectively valued at ₹261.85 per share. They have roughly 620 crore shares. That values Jio financials technically at ₹160,000 crore (roughly $20 billion),” said Deepak Shenoy, Founder, Capital Mind.

“But don’t go overboard, Jio Fin shares haven’t actually traded. What this means is that in the Nifty, Jio Financials will be valued at ₹160,000 cr. temporarily (until it eventually lists, when it will be removed). Oh, this will be so crazy for all the index funds when they get new inflows,” Shenoy wrote in a tweet.

Also Read: RIL-Jio Financial demerger FAQ: Here is what shareholders need to know

Ahead of the demerger, the billionaire Mukesh Ambani-led oil-to-telecom conglomerate, in a press release, gave a formula for determination of cost of acquisition of equity shares of the RIL and Reliance Strategic Investments Ltd (RSIL), which will be renamed as Jio Financial Services Ltd (JFSL). 

The cost of acquisition for Reliance Industries Ltd would be 95.32% while the rest 4.68% for Reliance Strategic Investments Limited, it said.

High valuation justified?

JFSL’s value derived in a special pre-open session was much higher than analysts’ estimates.

However, experts believe Jio Financial Services high share price is a reflection of the market’s assessment of the company’s potential. 

“The wide reach of JFSL through RIL’s other business segments like Reliance Retail has the potential to grow the company at a fast pace for many years to come. The market is discounting this potential,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Also Read: Reliance-JFSL demerger: What is the new demerged Jio Financial Services — explained

Coining similar views,  Pankaj Pandey, Head – Research, ICICI Direct said that against an implied value of ₹133 per share of Jio Financial Services, the market had valued the entity at ₹250-260 per share due to its strong networth of around ₹1 lakh crore (on consolidated basis) which was seen enabling faster growth in an already competitive financial marketplace,.

“In the initial phase, we expect the Jio Financial Services stock to follow implied value determined by market participants. We expect the company to deliver higher growth given the huge opportunity in the financial sector in the country and its own strong capitalisation, which will ensure that the company would not need to raise external equity capital for a reasonably long period of time, thereby limiting any dilution overhang,” Pandey said.

Read highlights of RIL-Jio Financial demerger here

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

Updated: 20 Jul 2023, 05:25 PM IST