The market is ready to be approached by Jio Financial to generate business, according to Deven Choksey, MD of KRChoksey Holdings Pvt. Ltd. It won’t happen in a single quarter. However, if you are preparing for a two or three-year adventure, they will probably result in a pretty sizable book. By the end of the third year, they could have produced a book worth more than Rs 10 lakh crore. So, what is occurring for Reliance Industries’ stockholders is a tremendously big offer.
The demerger and listing of Reliance Industries’ financial services company received approval from the National Company Law Tribunal. The financial services venture of Reliance would be demerged into Reliance Strategic Investments Limited (RSIL), given the name Jio Financial Services Limited (JFSL), and listed on the stock exchange. The split had received approval from creditors in May. What do you think?A brand-new setup is already available on the market. As you correctly pointed out, the creditors gave them their blessing. The NCLT authorised the plan on June 20. Yesterday, the order had to be issued, and that is where the news was made.
In large part because of a few reasons, I think this will be a solid value boost for the Reliance Group shareholders. There are about Rs 1,10,000 crore worth of Reliance Industries shares in this company’s initial underlying net worth, leaving the remaining amount in the form of real net worth. Accordingly, they would begin with a highly compelling offer as compared to its competitors in the market.
Bajaj Finance, which is the largest retail NBFC today, has about Rs 44,000 crore of net worth. Against that, Jio Financials would have around Rs 1,10,000 crore from share and balance from the cash, so around 1,50,000 crore kind of a net worth. So immediately, they would have an advantage of having a higher amount of AUM going forward.
There are mainly two areas where we see growth coming in for them – merchant lending and retail lending. They already have a retail book of around close to Rs 2,75,000-2,80,000 crore on an annual basis at the end of last quarter which is growing at around 15% rate of growth or close to Rs 3,00,000 crore worth of retail revenue book that they have got.
On one side, merchant lending could be around Rs 25,000 to 50,000 crore per month and the balance amount would be from retail lending where the means are significantly higher given the subvention pricing mechanism that they follow. So Jio Financial Services remains a strong proposition as far as the outlook is concerned on NBFC side. That definitely holds good for shareholders because they are getting 1:1 equity out of this particular proposition. We are getting a relatively better visibility for investment going forward from this particular company.
For the current shareholders of Reliance, before the record date, the Jio Financial Service will come for free. You will get shares of Jio Financial in your demat after the record date.
That is right. You are getting 1:1 share allotted against every share that you are holding for Reliance Industries.
My next question is that Reliance up until now has always created businesses and then listed them, whether it has been RPL or talks of listing other businesses. In this case, they are giving birth to a business and they are giving free share right at the birth. It is a very unusual practice and unlike what the historical precedence has been?Yes, but in financial services industries or the financial NBFC business, they could not have done it the way the other businesses got built up, particularly the manufacturing or industrial side of the business, even for the better consumer side of the business. In the NBFC business, one definitely requires a separate entity to operate for and as a result, this particular entity has to take birth if they want to grow it further.
As I was explaining, on one side, merchant lending is taking place. If they do it from the same company, conflict of interest would arise and that would be the case in retail also. Certainly they cannot tap the other areas including stock broking and the lending related to the shares etc. They cannot tap that particular business either because of the regulatory requirement of RBI on that front. All in all, put together, they had to give birth to a separate company with a sizable amount of network. The advantage which they did not have earlier will now materialise because the ramping of the books is at a much faster pace than otherwise. They probably have the market credit that is fundamentally very important.
On the retail side of the business, they have got market credit due to Money Control in their portfolio. They also have the list of investors already on that particular portal. So they have a market ready to approach them for generating business. It is not going to happen in one quarter, I agree. But at the same time, if you are planning for a two or three-year journey, they are likely to make a very significantly large size book. They could end up creating beyond Rs 10 lakh crore worth of book at the end of third year. So it is a really large proposition which is happening for investors of Reliance Industries.