Jio Financial shares: Should you buy, hold or sell JFS stock post listing?
JFS shares: G Chokkalingam, Founder at Equinomics Research said existing investors should not worry much as the stock looks reasonably valued. He advised new investors to buy the stock in a staggered manner
- Aug 21, 2023,
- Updated Aug 21, 2023 2:37 PM IST
Jio Financial Services (JFS), the demerged financial business of Reliance Industries, hit a lower circuit limit on its market debut on Monday amid concerns over passive outflows. But analysts believe the stock looks reasonably valued and could reward investors in the long-term. JFS shares got listed at Rs 265 apiece on BSE, a 1.18 per cent premium over their discovered price of Rs 261.85 apiece on July 20. But they soon got locked at a 5 per cent lower circuit limit at Rs 251.75 on BSE.
Analysts said JFS holds 41.3 crore treasury shares of Reliance Industries, accounting for 6.1 per cent of the total share capital). At the current market price, the value of these shares stood roughly at Rs 1 lakh crore. JFS can sell these shares in a staggered manner, or also simply hold on to them. Either way, its capital base will get a boost, analysts said. Like other NBFCs, JFS could use it to leverage significantly for the lending business, they added.
G Chokkalingam, Founder at Equinomics Research said existing investors should not worry much as the stock looks reasonably valued. He advised new investors to buy the stock in a staggered manner and felt a target of Rs 300 on the stock is possible.
"One should not worry at all. One should go by valuations. The medium and long-term outlook is strong for JFS. Investors, who are holding it, can hold the stock. Those investors looking to buy it can buy even today. The foreigners must be selling the stock today to rejig their portfolios. I can't recall a single stock from the Reliance group stable that disappointed Street in last few decades. At treasury value of Rs 1 lakh crore, even if we put it at 1.5 times, it is equal to prevailing market valuation. The kind of exposure JFS will have to Jio platforms and retail and the management's ability to scale the business makes us believe that the scrip may soon command a price to book ratio of 3 times," Chokkalingam said.
InCred Equities said the net worth of JFS as on March 2022 was Rs 28,000 crore, including Rs 17,000 crore paid for the treasury share of RIL. "Thus, core net worth is Rs 11,000 crore. At discovered price, excluding the current value of investments (6.1 per cent stake in RIL) worth Rs 1 lakh crore, the core business was valued at 6 times trailing BV. We expect such euphoric valuations to hold for a while amid expectation of robust organic growth as well as probable opportunities of inorganic growth available in the financial domain," it said.
JFS can trade around Rs 170 to Rs 220 levels in the short term as per business valuation and discount of holding company, said Ravi Singhal, CEO at GCL Broking. As the company holds treasury shares. They will come in the market for sale and help JFS get cash and increase its book value in the long term, he said.
"Long term investors can keep this stock for a target of Rs 340," Singhal said.
InCred Equities said JFS can opt for wide variety of financial service business including the lending business, digital broking, insurance, mutual funds, payments, etc. It said it is not alarmed towards threat to existing players as loan origination through existing set of customers is important. Other factors such as cost of funds, appropriate risk assessment as well as prudent recovery mechanism also plays an important role for the success of a lender, it said.
Brokerage CLSA noted that other than a stake in RIL, liquids worth $2.5 billion or Rs 33 a piece have been demerged into JFS. This can support a loan book of $13-15 billion, CLSA said. The foreign brokerage said even at the speed of the recent annual loan book additions of sector leader Bajaj Finance, JFS will take nearly three years to fully use up the amount. It noted that most lending financials trade below 3 times price to book ratio, except Bajaj Finance and Chola, which have return ratios of over 20 per cent. This, CLSA said, will need a PAT of over $500 million for core JFS.
"JFS will be taken out of key domestic benchmark indices after three days and this will force selling from passive funds. By vertue of owning RIL, CLSA's India focus portfolio has ownership of JFS but an exit will be pencilled in at the first 30 minutes weighted average price since it prefers banks," CLSA said.
A large core book reduces the need for JFS to sell its stake in Reliance Industries in the near term, CLSA said.
The demerged financial services arm would unlock value for RIL shareholders and "give them an opportunity to be a part of a new growth platform," RIL recently said in its annual report.
The JFS stock will be removed from Nifty and Sensex after the end of the third day of its listing, which is August 24. The exclusion date would, however, be deferred in certain scenarios. As per Abhilash Pagaria of Nuvama Institutional Equities, there could be passive outflows on the counter.
"Assuming the hypothetical price scenario for JFS on its Trading (T) + third day of listing - at Rs 261.8 Share - Nifty index passive trackers could sell around 9 crore shares, which is equivalent to approximately $290 million. Alongside Sensex index trackers could sell 5.5 crore shares, which is equivalent to $175 million," Pagaria said.
This is calculated at the current free float and assuming JFS weightages of less than 1 per cent in Nifty and around 1 per cent in Sensex.
"In case, during the first two days of these three days, the spun-off entity hits the price band on both days, then the exclusion date shall be deferred by another three days. After observing two consecutive days of the spun-off entity not hitting the price band, the spun-off entity shall be removed after the third trading day of such observation. If on such a third day spun-off entity again hits the price band, the exclusion of such stock shall not be deferred any more," Pagaria Nuvama noted.
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Also read: JFS shares list at Rs 265 on BSE; m-cap stands at Rs 1.68 lakh crore
Jio Financial Services (JFS), the demerged financial business of Reliance Industries, hit a lower circuit limit on its market debut on Monday amid concerns over passive outflows. But analysts believe the stock looks reasonably valued and could reward investors in the long-term. JFS shares got listed at Rs 265 apiece on BSE, a 1.18 per cent premium over their discovered price of Rs 261.85 apiece on July 20. But they soon got locked at a 5 per cent lower circuit limit at Rs 251.75 on BSE.
Analysts said JFS holds 41.3 crore treasury shares of Reliance Industries, accounting for 6.1 per cent of the total share capital). At the current market price, the value of these shares stood roughly at Rs 1 lakh crore. JFS can sell these shares in a staggered manner, or also simply hold on to them. Either way, its capital base will get a boost, analysts said. Like other NBFCs, JFS could use it to leverage significantly for the lending business, they added.
G Chokkalingam, Founder at Equinomics Research said existing investors should not worry much as the stock looks reasonably valued. He advised new investors to buy the stock in a staggered manner and felt a target of Rs 300 on the stock is possible.
"One should not worry at all. One should go by valuations. The medium and long-term outlook is strong for JFS. Investors, who are holding it, can hold the stock. Those investors looking to buy it can buy even today. The foreigners must be selling the stock today to rejig their portfolios. I can't recall a single stock from the Reliance group stable that disappointed Street in last few decades. At treasury value of Rs 1 lakh crore, even if we put it at 1.5 times, it is equal to prevailing market valuation. The kind of exposure JFS will have to Jio platforms and retail and the management's ability to scale the business makes us believe that the scrip may soon command a price to book ratio of 3 times," Chokkalingam said.
InCred Equities said the net worth of JFS as on March 2022 was Rs 28,000 crore, including Rs 17,000 crore paid for the treasury share of RIL. "Thus, core net worth is Rs 11,000 crore. At discovered price, excluding the current value of investments (6.1 per cent stake in RIL) worth Rs 1 lakh crore, the core business was valued at 6 times trailing BV. We expect such euphoric valuations to hold for a while amid expectation of robust organic growth as well as probable opportunities of inorganic growth available in the financial domain," it said.
JFS can trade around Rs 170 to Rs 220 levels in the short term as per business valuation and discount of holding company, said Ravi Singhal, CEO at GCL Broking. As the company holds treasury shares. They will come in the market for sale and help JFS get cash and increase its book value in the long term, he said.
"Long term investors can keep this stock for a target of Rs 340," Singhal said.
InCred Equities said JFS can opt for wide variety of financial service business including the lending business, digital broking, insurance, mutual funds, payments, etc. It said it is not alarmed towards threat to existing players as loan origination through existing set of customers is important. Other factors such as cost of funds, appropriate risk assessment as well as prudent recovery mechanism also plays an important role for the success of a lender, it said.
Brokerage CLSA noted that other than a stake in RIL, liquids worth $2.5 billion or Rs 33 a piece have been demerged into JFS. This can support a loan book of $13-15 billion, CLSA said. The foreign brokerage said even at the speed of the recent annual loan book additions of sector leader Bajaj Finance, JFS will take nearly three years to fully use up the amount. It noted that most lending financials trade below 3 times price to book ratio, except Bajaj Finance and Chola, which have return ratios of over 20 per cent. This, CLSA said, will need a PAT of over $500 million for core JFS.
"JFS will be taken out of key domestic benchmark indices after three days and this will force selling from passive funds. By vertue of owning RIL, CLSA's India focus portfolio has ownership of JFS but an exit will be pencilled in at the first 30 minutes weighted average price since it prefers banks," CLSA said.
A large core book reduces the need for JFS to sell its stake in Reliance Industries in the near term, CLSA said.
The demerged financial services arm would unlock value for RIL shareholders and "give them an opportunity to be a part of a new growth platform," RIL recently said in its annual report.
The JFS stock will be removed from Nifty and Sensex after the end of the third day of its listing, which is August 24. The exclusion date would, however, be deferred in certain scenarios. As per Abhilash Pagaria of Nuvama Institutional Equities, there could be passive outflows on the counter.
"Assuming the hypothetical price scenario for JFS on its Trading (T) + third day of listing - at Rs 261.8 Share - Nifty index passive trackers could sell around 9 crore shares, which is equivalent to approximately $290 million. Alongside Sensex index trackers could sell 5.5 crore shares, which is equivalent to $175 million," Pagaria said.
This is calculated at the current free float and assuming JFS weightages of less than 1 per cent in Nifty and around 1 per cent in Sensex.
"In case, during the first two days of these three days, the spun-off entity hits the price band on both days, then the exclusion date shall be deferred by another three days. After observing two consecutive days of the spun-off entity not hitting the price band, the spun-off entity shall be removed after the third trading day of such observation. If on such a third day spun-off entity again hits the price band, the exclusion of such stock shall not be deferred any more," Pagaria Nuvama noted.
Also read: Titan shares: Caratlane stake purchase EPS dilutive in near term. Stock price targets & more
Also read: JFS shares list at Rs 265 on BSE; m-cap stands at Rs 1.68 lakh crore