Reliance Industries Ltd., India's most valuable company, may consider spinning off its telecom unit Jio for a public listing as soon as 2025, Jefferies said in a research note, as investors prefer the route to an initial public offering.The move comes as Jio has recently focused on monetizing and growing market share, as shown by its leading role in raising tariffs.
The spin-off option has come under scrutiny amid concerns over holding-company discounts, which are common in Indian markets, where listed subsidiaries often trade at a 20-50% discount when owned by their parent companies.An IPO would allow Mukesh Ambani-led Reliance to retain majority control of Jio but it risks undervaluing the telecom giant in Reliance’s market capitalization.
Jio, which serves more than 475 million wireless subscribers, raised about $20 billion in 2020 from investors including Meta, Google, General Atlantic, KKR, Silver Lake, Mubadala, TPG, Abu Dhabi Investment Authority, Intel and Qualcomm. During the 2020 round, Jio was valued at $58 billion. Jio's main rival in India, Airtel, has a market capitalization of nearly $98 billion. Bank of America valued Jio at $107 billion last year.
Image: Jeffries
The spin-off would see Reliance shareholders get a pro rata stake in Jio, potentially leading to a more accurate standalone valuation. This would reduce Reliance shareholders' controlling stake to 33.3% from the current 66.3%.
It has long been expected that Reliance would list Jio and Reliance Retail, the country's largest retail chain. Last year, Reliance made a surprise move by spinning off its financial services offering and listing Jio Financial Services. Since the spin-off in August 2023, Jio Financial Services' shares have soared 40% and Reliance has outperformed the Nifty index by 1,100 basis points.
Jefferies said the successful spin-off of Jio Financial Services last year could be a model for how it thinks about potential listings of Jio and Reliance Retail.
Analysts at Jefferies estimate that a listing could value Jio at $112 billion and boost Reliance shares by 7-15%. They peg the fair value of Reliance at Rs 3,580 a share in a spin-off scenario and Rs 3,365 in an IPO assuming a 20% discount from the holding company.