RIL shareholders may get 3-5% richer after Jio Financial Services is formed

Shareholders of Reliance Industries Ltd are likely to be 3-5 percent richer after Reliance Strategic Investments Limited is spun off into Jio Financial Services, Nuvama said.

The brokerage firm highlighted the anticipation surrounding RIL’s ability to unlock value for investors, with all eyes focused on this aspect. Taking historical performance into consideration, it suggests that there is a likelihood of gains for RIL investors in future.

Nuvama has assigned a value of Rs 168 per share for the soon-to-be-hived-off Reliance Strategic Investments Limited. It has pegged the value of non-operating assets at Rs 323 per share. The treasury shares have been valued at Rs 168 per share, considering RIL’s closing price on July 14.

“We demonstrate that back in 2005, when RIL demerged four entities, the market actually rewarded RIL. After the split, shareholder wealth swelled 38 percent. Should the market have a déjà vu moment this time too, shareholders’ wealth could potentially increase by 3–5 percent. The demerger of financial services arm will be spun off RIL’s 6.1 percent treasury shares (valued at Rs 117/share: 4 percent of CMP after assuming 30 percent holding comany discount; Rs 168/share or 6 percent of CMP ex-discount),” Nuvama said in its note.

“Valuation of the demerged entity is estimated at Rs 1 trillion (6 percent of the current market price),” the Nuvama report said. It retained the ‘buy’ rating on RIL and kept the target price at Rs 3,205 a share.

Nuvama also maintains a positive outlook and strong valuation for RIL, driven by the anticipated ‘Golden era of Refining’. They expect RIL’s refining business (O2C) to benefit significantly from this era, with projected Gross Refining Margins (GRMs) surpassing $10 per barrel from CY24 onwards.

Nuvama asserts that RIL’s upstream division will continue to benefit from elevated gas prices and a faster-than-expected ramp-up in KG-D6 production. They suggest that by FY24, the upstream division’s EBITDA will closely rival that of the retail division.

Also, the brokerage firm said, RIL’s foray into the new energy sector is expected to unlock further growth potential and support its conventional businesses through upgrades in new energy technologies. RIL has set a target to transition progressively from grey hydrogen to green hydrogen by 2025. Moreover, RIL plans to venture into the FMCG (Fast-Moving Consumer Goods) business within its retail division, aiming to develop and offer high-quality and affordable products.

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