Jio to command Rs 9,35,000 cr valuation at listing! What Jefferies says on IPO prospects, RIL

Jefferies in its latest note said the telecom business of Reliance Industries Ltd (RIL), Reliance Jio Infocomm (Jio), could be valued at $112 billion upon its public listing. At an dollar-rupee exchange rate of 83.49, this translates to 9.35 lakh crore. 

The foreign brokerage talked about two scenarios: The one where IPO route is picked and the other where vertical spin-off route is selected for public listing. Jefferies said RIL investors prefer the latter route. Irrespective of routes, it sees a possible Jio public listing in 2025. 

Jio has 33.7 per cent minority shareholders. RIL can fulfill the IPO requirement by listing 10 per cent of Jio's stake. Since Jio is past its peak capex phase, the entire IPO could be an Offer for Sale (OFS) by minorities. 

"However, 35% of an IPO is reserved for the retail segment that would require large mobilisation from retail investors (unsubscribed retail portion can be allocated to HNI/QIB based on their oversubscription). While RIL would retain majority control after the listing, our analysis suggests the Indian stock market imputes a holdco discount of 20-50 per cent to a listed subsidiary in arriving at a holdco's fair value," it said.

In the vertical spin-off route, there may not be holding company discount for RIL, but lower stake. In this cas, Reliance  Industries could look to spin off Jio and list it after a price discovery. Shareholders in RIL would receive their proportionate shareholding in Jio adjusted for RIL's 66.3 per cent stake in the latter. 

"This would avoid the holdco discount and enable better value unlocking benefiting RIL shareholders. The owner's stake in Jio would fall to 33.3 per cent on listing. We note the owner's stake in the recently spun-off JFS was 45.8 per cent 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.

Jefferies said investors' primary concern is the holdco discount of 20-50 per cent in India but steeper (50-70 per cent) for conglomerates in Korea and Taiwan. The large retail investor mobilisation in the case of an IPO is another concern. 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, Jefferies said.

Assuming Jio is demerged from RIL's stable, Jefferies' fair value for RIL would be Rs 3,580, implying 15 per cent upside. If IPO-ed, RIL's fair value would fall to Rs 3,365 in the base case (20 per cent holdco discount).