Introduction
In its maiden trading session, shares of Jio Financial Services (JSF) experienced a lower circuit, following its listing on Monday. The stock commenced trading at Rs 265 per share, representing a slight premium of over 1% compared to its derived price of Rs 261.85 per share on July 20, the record date for the company’s demerger.
Market Capitalization and Performance of Jio Financial Services
The total market capitalization of Jio Financial Services underwent a correction, dropping below Rs 1.6 lakh crore from its initial value of more than Rs 1.68 lakh crore at the start of trading. Notably, the stock falls under the ‘T’ group securities on BSE, indicating that intra-day trading is restricted.
Share Distribution and Price of Jio Financial Services
Share Distribution and Price of Jio Financial ServicesEligible shareholders of Reliance Industries (RIL) were credited with JFS shares in a 1:1 ratio. This meant that every Reliance Industries shareholder received one share of Jio Financial Services. The discovered share price for JFS based on the record date exceeded market estimates of Rs 160-170 per share.
Business Focus and Strategy
Jio Financial Services, the second-largest Non-Banking Financial Company (NBFC) by market capitalization, is placing a strong emphasis on merchant and customer lending, leveraging its parent company’s extensive presence in kirana stores. As of the end of June, Reliance Industries boasted a store count of 18,446 and 26.7 crore registered customers.
Index Inclusion and Future Outlook
Jio Finance Services is presently part of benchmark indices and will be removed from Nifty and Sensex after three trading days from its listing date, which falls on August 24. However, this exclusion date might be delayed under certain circumstances, as suggested by Abhilash Pagaria of Nuvama Institutional Equities. Passive outflows on the counter are also anticipated.
Valuable Demerger Details ofย Jio Financial Services
CLSA, a brokerage firm, highlighted that apart from the stake in RIL, assets amounting to $2.5 billion or Rs 33 per share were demerged into JFS. This substantial sum can support a loan book ranging between $13-15 billion. Despite this, even with the momentum of Bajaj Finance’s annual loan book additions, it would take JFS nearly three years to utilize the entire amount.
Financial Performance and Strategy
Many lending financial institutions are valued at less than three times their price-to-book ratio. Excluding Bajaj Finance and Chola, which boast return ratios exceeding 20%. According to CLSA, core Jio Finance Services would require a profit after tax (PAT) exceeding $500 million, considering the extensive core book, which reduces the need for immediate stake sales in Reliance Industries.
Conclusion
Jio Financial Services’ listing has been met with initial challenges, marked by a lower circuit on its debut trading day. However, with a strategic focus on merchant and customer lending, backed by a substantial demerger asset, the company holds potential for future growth. The market will be closely monitoring its performance and strategic moves as it navigates the evolving financial landscape.
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