NEW DELHI: Reliance Industries (RIL)’s announcement of demerger and listing of its financial services business sets the stage for monetisation of its verticals and is a positive trigger for the Group as a whole, said analysts.
This comes at a time when RIL’s bread-and-butter oil-to-chemical (O2C) business is under pressure after the government introduced a windfall tax on the transportation of oil.
Analysts believe financial services will benefit from the huge advancement made by RIL, India’s biggest entity by market cap, in the retail and digital space.
“We reduce our FY23/24/25E PAT (profit after tax) by 10 per cent/4 per cent/3 per cent, as we build in lower O2C margins, partially offset by better upstream and retail. Consequently, we cut our Sep-23E SOTP-based TP (target price) by 1 per cent to Rs 2,710. RIL announced the demerger and listing of its financial services business, thereby setting the stage for monetisation of its verticals, which we view as a positive trigger, unlocking value. We maintain BUY on the stock,” said analysts at Emkay in a note.
India’s second-richest billionaire Mukesh Ambani's RIL on Friday said it will demerge its financial services arm and list it on the stock exchanges. Reliance shareholders will be issued one equity share of Jio Financial Services Ltd (JFSL) for every share they hold in the company.
RIL share prices fell over 1.5 per cent on Tuesday to Rs 2,442 apiece after the firm reported lower-than-expected Q2FY23 numbers. JFSL plans to launch a consumer and merchant lending business while continuing to evaluate organic growth, joint venture partnerships as well as inorganic opportunities in insurance, asset management and digital broking segments, according to a statement issued by the company.
Utkarsh Sinha managing director Bexley advisors, a boutique investment bank firm, said that this demerger and listing also opens up the opportunity for JFSL to embark on aggressive monetization, while expanding the parent entity's reach into hitherto less active spaces, like consumer financing, FinTech and other things. Global brokerage firm JP Morgan also sees the JFS demerger as very positive, as it allows for the creation of a consumer and merchant lender leveraging RIL’s Digital and Retail strengths.
Brokerage firm BofA Securities, however, expects limited upside in RIL stock from the demerger of the financial services business as it sees value unlocking given smaller contribution and share dilution.
RIL consolidated net profit came down to Rs 13,656 crorein Q2FY23 as compared to Rs 13,680 crore from the year ago quarter(Q2FY22), and was down 24% from Rs 17,955 crore in the July-ended quarter (Q1FY23). The 02C Segment EBITDA for Q2FY23 came down to Rs 11,968 crore from Rs 19,888 crore in Q1FY23.
Demerger plans
RIL on Friday said it will demerge its financial services arm and list it on exchanges
RIL shareholders will get one equity share of Jio Financial Services for every share they hold
JFSL plans to launch a consumer and merchant lending business
RIL shares fell over 1.5 per cent on Tuesday to L2,442 apiece after it reported lower-than-expected Q2FY23 numbers