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Reliance Jio Infocomm Ltd, the telecom arm of Reliance Industries Ltd (RIL), is poised for a significant IPO in 2025, with a projected valuation exceeding Rs 9.3 lakh crore, according to a Jefferies report. The note, dated July 11, suggests Jio could list at a $112 billion valuation, potentially boosting RIL’s share price by 7-15%.
Jefferies has maintained a ‘buy’ rating on RIL stock, setting a target price of Rs 3,580 per share, indicating a 13% upside from the last closing price of Rs 3,164. RIL’s share price has surged over 22% since January, outperforming the Nifty 50 index, which has gained 12% in the same period.
The entire IPO is likely to be an offer for sale (OFS) by minority shareholders. Jefferies noted that RIL might opt to spin off Jio and list it post a price discovery process, similar to the recent listing of Jio Financial Services (JFS) through a spinoff. Both domestic and foreign investors seem to favor this spin-off route due to the avoidance of the holdco discount typically applied to listed subsidiaries.
In August 2023, RIL successfully spun off its financial services arm, Jio Financial Services, using a price discovery method. For Jio’s potential listing in 2025, the scenario of a spin-off versus an IPO is under consideration. A spin-off would avoid the holding company discount and better unlock value for RIL shareholders, while an IPO would require listing only 10% of Jio as per SEBI regulations.
Assuming a spin-off, Jefferies estimates RIL’s fair value at Rs 3,580, reflecting a 14% upside. In the base case of an IPO, the fair value would be Rs 3,365, adjusted for a 20% holding company discount. In a bullish scenario, the value could rise to Rs 3,700, representing an 18% upside.
Jio has been a leader in telecom tariff hikes while keeping feature phone tariffs unchanged, demonstrating its focus on monetization and market share gains. These strategic moves strengthen the case for a public listing in 2025.
Shareholders of RIL are expected to receive proportionate shares in Jio, adjusted for RIL’s 66.3% stake, to prevent the holding company discount. On listing, RIL’s ownership in Jio would reduce to 33.3%. The performance of RIL and JFS stocks post spin-off supports the preference for this route.
Institutional investors generally prefer spin-offs to avoid steep holding company discounts. In India, this discount ranges from 20-50%, while in Korea and Taiwan, it can be as high as 50-70%. The challenge of mobilizing large retail investors for an IPO is another consideration favoring a spin-off.
Reliance Jio Infocomm Ltd’s potential IPO or spin-off in 2025 represents a significant opportunity for RIL and its shareholders. With strategic moves focusing on market share and monetization, Jio is well-positioned for a successful public listing, whether through an IPO or spin-off.