Reliance demerger: Billionaire Mukesh Ambani’s new chocolate boy Jio Financial Services (JFSL) today took all bulls of Reliance Industries (RIL) by surprise as the NBFC unit’s share price came out to be Rs 261.85 per share, much higher than brokerage estimates of up to Rs 190.
At the end of a special pre-open call auction session on stock exchanges on Thursday, the market price of Jio Financial Services (JFSL) was derived at Rs 261.85 per share on NSE. Taking into account the impact of demerger, the share price of Reliance Industries (RIL) fell to Rs 2,580 but rallied up to 2% after normal trading resumed from 10 am.
Earlier in the day, RIL declared that its post-demerger acquisition cost for Reliance Strategic Investments Limited, which is being renamed as JFSL, is 4.68%. Considering Wednesday’s closing price of Rs 2,840 on BSE, the cost of acquisition comes to Rs 133.
Today’s exercise to value JFSL topped all brokerage estimates which pegged the share price to be in between Rs 160-190 apiece.
“This high price is a reflection of the market’s assessment of Jio Financials’ potential. The wide reach of JFSL through RIL’s other business segments like Reliance Retail has the potential to grow the company at a fast pace for many years to come. The market is discounting this potential,” said Dr. V K Vijayakumar of Geojit Financial.
Following the demerger, JFSL’s total outstanding shares will come at 635.32 crore and therefore the total market capitalisation of the company comes in at Rs 1.66 lakh crore.
How was JFSL share price calculated?
Stock exchanges BSE and NSE conducted a special pre-open trading session this morning from 9 am to 9:45 am in which the market price of the demerged entity was calculated. As part of the exercise, normal trading was restricted in the Nifty50 stock till 10 am.
JFSL’s constant price computed today is nothing but the difference between RIL’s closing price on Wednesday and the price derived during the special pre-open session today. On NSE, RIL had ended last session at Rs 2,841.85 while today’s price after the special session came in at Rs 2,580. The difference to which RIL shares fell after the demerger ie. Rs 261.85 is being treated as the price of JFSL.
All RIL shareholders at the end of the trading day on July 19 will be eligible to get JFSL shares in the ratio of 1:1. For example, if you own 100 RIL shares, you will be awarded with 100 JFSL shares. But you cannot trade in JFSL shares till the date it gets listed on stock exchanges.
The listing date could be in the next 2-3 months and is expected to be announced at Reliance’s forthcoming AGM.
Impact of RIL demerger in Nifty
JFSL will be included in major indices, including benchmark Nifty50, at the constant price derived today.
“JFSL will be dropped from all the NSE and BSE indices at the last traded price which is effective at the open of JFSL listing date + 3 business days. For Instance, if supposedly JFSL lists on August 21, 2023 then stock will compulsorily be deleted on August 24, 2023,” Nuvama’s Abhilash Pagaria said.
Why the demerger?
The Ambani family chose to spin-off JFSL into a separate entity because the growth and expansion of financial services business would require differentiated strategy aligned to its industry specific risks, market dynamics and growth trajectory.
The nature and competition involved in the financial services business is distinct from the other businesses like oil to chemicals, retail and telecom owned by RIL.
The demerger will also allow JFSL to enjoy a higher leverage, as compared to the RIL, for its growth. For shareholders, it is being seen as a value unlocking exercise.
Article Source: economictimes.indiatimes.com