Buy Reliance Industries Limited target price at Rs 2,825 - Motilal Oswal Financial Services Ltd
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* Share Swap
* Every RIL shareholder will get 1 share of Reliance Strategic Investments Limited (RSIL) of INR10 FV. RSIL will subsequently be renamed as JFS.
* Adjusted for the treasury shares of 6.1% (~410m shares), total shares outstanding in JFS will be 6.35b. (Refer Exhibit 2)
* Valuation
* JFS owns 6.1% in RIL, which is valued at INR1.1t. This would represent a substantial portion (~90%) of JFS’s net worth. Excluding investments in RIL shares, JFS’s net worth would be ~INR100b.
* Assuming that the investments in RIL shares represent ~90% of JFS’s networth, the book value per share of JFS would be ~INR190. (Refer Exhibit 1) ? Our current SOTP-based TP of INR2,825 for RIL does not include the JFS value; hence, this event could lead to value-unlocking potential for RIL.
Jio Financial Services Limited (JFS)
* JFS had shared earlier that it would have a presence across four businesses: 1) Lending (Consumer Loans and Merchant loans), 2) Insurance (both Life and Non-life), 3) AMC and Wealth Management, and 4) Payments bank. * While JFS will do the lending business independently and organically, for the Insurance and AMC/Wealth Management businesses, it might enter into a joint venture or a partnership agreement with either an existing player or a new player who wants to enter the Indian market.
* JFS will enjoy the AAA rating (similar to RIL), which could mean that its borrowing costs could be among the lowest in the cohort of NBFCs.
* JFS could leverage 18,040 Reliance Retail stores, which have 780m footfall annually and a subscriber base of 440m.
Management Team
* JFS had earlier appointed Mr. K.V. Kamath as Chairman and Mr. Hitesh Sethi (Ex-ICICI Bank veteran) as CEO.
Peers
* Arguably, these are still early days for JFS but lending franchises in the NBFC sector, e.g., Bajaj Finance and Chola Finance, trade at 5.6x FY25E P/BV and 4.3x FY25E P/BV, respectively.
* In addition to the lending business, JFS will also house the insurance business, the AMC and Wealth Management business, and Payments Bank.
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