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Synopsis: Reliance Jio Infocomm is expected to go public by 2025, with Jefferies indicating a spinoff or IPO as potential routes. A spinoff could mitigate the 20-50% holding company discount prevalent in the Indian market, offering a higher fair value for RIL at ?3,580 compared to ?3,365 in an IPO scenario. Recent tariff hikes and strategic investments position Jio favorably for this move.
Jefferies highlighted that Jio's recent tariff hikes, while keeping featurephone tariffs unchanged, underscore a strategic focus on monetization and increasing market share. This move positions Jio favorably for a public listing within the next two years.
The foreign brokerage suggests that the decision between an IPO and a spinoff will depend on the balance between achieving full value-unlocking and maintaining a lower controlling stake. Given the Indian market's tendency to impose a 20-50% holding company discount on listed subsidiaries, Jefferies argues that a spinoff might be preferred to mitigate this discount. Institutional investors also favor a spinoff to avoid the holdco discount.
Jefferies estimates that if Jio is spun off, RIL's fair value would be around ?3,580, implying a 15% upside. In contrast, an IPO would result in a fair value of ?3,365 for RIL, reflecting a 20% holdco discount. The large retail investor mobilization in an IPO and the possibility of private equity funds selling shares post-spinoff are considerations influencing this decision.
The anticipated public listing follows significant investments in Jio by global private equity firms in 2020, including KKR, Silver Lake, and General Atlantic, among others. Jio's valuation is expected to rise significantly after an anticipated tariff hike later this year, enhancing its attractiveness for investors.
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