Reliance stock: Jefferies says Jio listing likely in 2025, shares RIL's fair values in case of IPO, spinoff

As stock investors eye much-awaited value unlocking at Reliance Industries (RIL), foreign brokerage Jefferies said the decision to spin off or bring initial public offer (IPO) for the telecom arm Reliance Jio Infocomm hinges on balancing the upside potential of full value-unlocking in the spin off with the lower controlling stake.

With Indian market imputing 20-50 per cent holding company discount to listed subsidiaries, controlling owner's less than majority stake in Jio Financial Services (JFS) at the time of spin off and strong performance of RIL and JFS stocks post spin off, made Jefferies believe Jio could be spun off. Institutional investors prefer a spin off to avoid the holdco discount, it noted.

Jefferies said Jio's public listing is possible by 2025. Jio is leading the way in the recent tariff hikes unlike in the past while keeping featurephone tariffs unchanged shows focus on monetisation and subscriber market share gains, the foreign brokerage said.

"These moves create a case for a possible public listing in CY25 in our view. RIL could look to IPO or spin off Jio, as it did with Jio Financial Services," it said. 

Assuming Jio is spun off 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).

"Investors, domestic as well as foreign, appear to favour the spin off route for Jio's potential listing. Their 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," it said.