Explainer: What does RIL-JFSL demerger mean for shareholders?
Will the demerger of Jio Financial Services (JFSL) from Reliance Industries unlock value for shareholders of both companies? There are lots of questions on investors’ mind such as whether one should buy Reliance shares for windfall gains before the record date; who will be entitled to get JFSL shares; and when the demerged entity will make its debut on stock exchanges.
Amid all these speculations, the demerger of Reliance Strategic Investments Limited (RSIL) from Reliance Industries took place today, and JFSL was listed as a separate entity on the BSE and NSE indices. The share price for JFSL was discovered at ₹261.85 at a special pre-open session conducted by the NSE, which was much higher than analysts’ estimate of ₹160-190 per share. Axis Securities has pegged JFSL price at ₹160 apiece, while Motilal Oswal at ₹190 per share. Nuvama Institutional Equities has estimated the listing at ₹168, while Jefferies and JPMorgan at ₹179 and ₹189, respectively.
“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,” says V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Analysts at Axis Securities have recommended investors to ‘Buy’ Reliance shares before the record date and believe it to be a more economical way to buy Jio Financial Services.
“Investors can hold Jio Financials’ stocks in their portfolio for the long term, given the management and financial resources available to the company,” says Kranthi Bathini, Director Research, WealthMills.
Here are the answers to some of the relevant queries related to the RIL-JFSL demerger:
How is JFSL's share price determined?
At the special pre-open session conducted by the NSE today, the share price for Jio Financial Services was discovered at ₹261.85 and that of RIL ex-JFSL was fixed at ₹2,580. The JFSL share price was derived based on the difference between Reliance's last closing price of ₹2,853 on the NSE and the open price of RIL discovered during the special pre-open session today. Reliance share price settled at ₹2,580 apiece in the special pre-open session on the NSE.
Are JFSL shares tradeable?
No, you cannot trade in JFSL shares till the date it gets listed on stock exchanges. JFSL will be maintained in all the NSE and BSE Indices at a constant price till the listing date is announced. It will be removed from all the indices three days after JFSL listing on the stock exchanges. For example, If supposedly JFSL lists on July 31, 2023, then stock will compulsorily be deleted on August 3, 2023.
What is the tentative date of JFSL listing?
As of now, there is no official announcement regarding the listing of JFSL on the domestic bourses. Axis Securities in a report said that the JFSL shares may list on the BSE and NSE in the next 2-3 months.
Who is entitled to get JFSL shares?
The oil-to-telecom conglomerate has fixed July 20 as the record date to determine eligible shareholders for the allotment of shares of the demerged entity. The ratio for demerger is set at 1:1, which means all RIL shareholders at the end of the trading day on July 19 will be eligible to get 1 share of JFSL.
Will JFSL be added in weight calculation in NSE and BSE Indices?
JFSL has been added as a 51st constituent in Nifty50 and 31st constituent in Sensex. The stock will be considered in weight calculations of indices on a daily basis. Since JSPL shares are not tradeable, the price of JFSL will remain constant until it lists.
How JFSL performed in the last fiscal?
For the quarter ended June 30, 2023, RSIL, which was renamed as JFSL post listing, recorded net profit after tax at ₹145.7 crore against a loss of ₹1.84 crore in the year ago period. The company had posted a profit of ₹31.25 crore in March 2023 quarter. The total income from operations stood at ₹214.57 crore in June quarter compared with ₹44.84 crore in the March 2023 quarter and loss of ₹14.03 crore in the corresponding period last year.
What will be the net worth of JFSL in FY23?
RIL in an exchange filing this morning shared a formula for the determination of cost of acquisition of equity shares of RIL and RSIL (JFSL). The formula states apportion of demerger cost of acquisition of equity shares of the RIL in the ratio of 4.68 for RSIL and 95.32 for RIL. Income Tax provisions states that the cost of acquisition in case of demerger will be the net worth of the resulting company (RSIL) divided by the net worth of the demerged company (RIL).
Based on the above formula, domestic brokerage Centrum Broking derived the net worth of JFSL at ₹23,500 crore, considering the standalone net worth of RIL at ₹5 lakh crore (as on March 31, 2023) and apportionment ratio of 4.68% of JFSL.
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