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Jio Financial Services demerger and listing: What RIL shareholders should know?


During the one-hour Muhurat trading on Monday, RIL shares witnessed volatility. The shares hit a high of 2,501 apiece during the trading session before closing at 2,479.70 apiece on BSE up by 7.75 or 0.31%.

RIL is the largest company in terms of market share. It has a market cap of over 16.77 lakh crore as of October 24.

Here’s key important plans of RIL that shareholders should know: 

Listing of NBFC arm:

RIL’s board has approved a scheme of arrangement between the company, Reliance Strategic Investments (RSIL) and their respective shareholders and creditors. Under the scheme, RIL will demerge its financial services undertaking into RSIL which will be renamed as Jio Financial Services (JFSL). The new firm will be listed on the Indian stock exchanges.

At present, RSIL is a wholly-owned subsidiary of RIL and is a RBI-registered non-Deposit taking Systemically Important (ND-SI) Non-Banking Financial Company.

Further, in the scheme, shareholders of RIL will receive 1 equity share of JFSL at face value of 10 each for 1 fully paid-up equity share of 10 held in RIL (entitlement ratio).

The new firm is expected to build a large digital fintech platform for all Indians. While it is likely to give multiple growth opportunities across the financial services landscape. The corporate and capital structure is likely to enable RIL shareholders’ participation in an exponential growth business.

Restructuring of EPC resources:

In another development, RIL’s board-approved scheme under which the EPC and Infrastructure Undertaking of Reliance Projects and Property Management Services (RPPMSL) is proposed to be demerged into RIL.

According to the statement, the focused EPC Undertaking will aggregate and synergize the engineering capabilities and expertise of the group. The EPC undertaking will play a pivotal role in implementing RIL’s large projects across O2C, New Energy, and 5G roll-out.

Also, the implementation of these mega projects will require significant mobilization of global technology and EPC resources. Increasing infrastructure spend across geographies in oil & gas, chemicals, telecom, and renewable energy sectors is expected to drive significant demand for EPC resources.

The new EPC Undertaking will facilitate internationalization by setting up EPC Centres of Excellence at strategic offshore locations. It will align with existing subsidiaries of RIL in

USA and Dubai. It will also incorporate new subsidiaries in Singapore and UK.

RIL’s Q2FY23 earnings:

In the second quarter of FY23, RIL reported a consolidated net profit of 13,656 crore — inching lower than the same quarter last year. On a quarter-on-quarter basis, RIL’s PAT dipped by 24%. Consolidated revenue from operations, however, rose by 33.7% to 2.32 lakh crore in Q2FY23 compared to 1.74 lakh crore in Q2 of the previous fiscal.

During the quarter, among key highlights were — the company’s Reliance Retail and Jio recorded a record quarterly EBITDA of 4,404 crore and 12,011 crore up by 51.2% yoy and 29.2% yoy respectively. Also, Reliance Retail becomes the first Indian retailer with over 50 million square feet of retail space.

Additionally, in the quarter, the Oil and Gas business witnessed 3 times jump in quarterly EBITDA. However, O2C business EBITDA dipped by 5.9% yoy to 11,968 crore in Q2FY23, but revenue climbed 32.5% yoy. The company’s exports were around 86,382 crore higher by 57.5% yoy.

What should investors do?

According to ICICI Direct note, the long-term prospects and dominant standing of RIL in each of its product & service portfolio provide comfort for long-term value creation. RIL’s consumer business will be the growth driver, going ahead. However, refining product cracks have seen correction compared to peaks witnessed in Q1FY23.

“We maintain our HOLD rating on the stock,” the brokerage’s note added, “We value RIL at 2,700 on a SoTP basis.”

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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