Reliance Industries, India’s most valuable company, may consider spinning off its telecom arm Jio for a public listing as early as 2025, as investors favor that route over an initial public offering, Jefferies said in a research note. The move follows Jio’s recent focus on profitability and market share gains, signaled by its leading role in raising tariffs.
The breakup option is gaining traction due to concerns about the holding company discount prevailing in the Indian market, where listed subsidiaries often trade at a 20-50% discount to when owned by a parent company. While an IPO would allow Mukesh Ambani-led Reliance to retain majority control of Jio, it risks diluting the telecom giant’s value within Reliance’s market capitalization.
Jio, which serves over 475 million wireless subscribers, raised about $20 billion in 2020 from investors including Meta, Google, General Atlantic, KKR, Silver Lake, Mubadala, TPG, Abu Dhabi Investment Authority, Intel and Qualcomm. Jio was valued at $58 billion before the funding round during 2020. Airtel, Jio’s main competitor in India, has a market cap of nearly $98 billion. Bank of America gave Jio a valuation of $107 billion last year.
The spin-off would allow Reliance shareholders to have proportionate ownership in Jio, which could lead to a more accurate independent valuation. It would reduce Reliance’s controlling stake to 33.3%, down from the current 66.3%.
Reliance had long been expected to list Jio and Reliance Retail, the country’s largest retail chain, on the stock exchange. In a surprise move last year, Reliance split off its financial services business and listed Jio Financial Services. Since the split in August 2023, Jio Financial Services shares have risen 40%, while Reliance has outperformed the Nifty by about 1,100 basis points.
Jefferies said the success of Jio Financial Services last year could serve as a model for how the company views potential listings of Jio and Reliance Retail.
Jefferies analysts estimate that the IPO could value Jio at around $112 billion, which could see Reliance shares rise by 7-15%. They see a fair value of Rs 3,580 per share for Reliance in a demerger scenario, compared with Rs 3,365 per share in the IPO, assuming a 20% discount to the holding company.