Reliance Industries, India’s most valuable company, is considering spinning off its telecom arm, Jio, for a public listing as early as 2025. This move is in response to concerns over the holding company discount prevalent in the Indian market, where subsidiaries of parent companies often trade at a significant discount. While an IPO would allow Reliance to maintain majority control of Jio, it runs the risk of undervaluing the telecom giant within Reliance’s overall market capitalization.
Jio has made significant strides in recent years, serving over 475 million wireless subscribers and raising $20 billion in 2020 from major investors such as Meta, Google, General Atlantic, KKR, Silver Lake, Mubadala, TPG, Abu Dhabi Investment Authority, Intel, and Qualcomm. During the 2020 investments, Jio was valued at $58 billion pre-money. In comparison, its chief rival in India, Airtel, has a market cap of nearly $98 billion. Bank of America even gave Jio a valuation of $107 billion last year.
A spinoff of Jio would allow Reliance shareholders to receive proportionate ownership in the telecom arm, potentially leading to a more accurate standalone valuation. This would also result in a reduction of Reliance’s controlling stake from 66.3% to 33.3%. Moreover, the success of Jio Financial Services’ spinoff last year serves as a model for how the company views potential listings of Jio and Reliance Retail.
According to Jefferies analysts, a public listing of Jio could value the telecom arm at $112 billion, potentially driving a 7-15% upside for Reliance’s stock. In a spinoff scenario, they project a fair value of 3,580 rupees per share for Reliance compared to 3,365 rupees for an IPO, assuming a 20% holding company discount.
Overall, the potential spinoff of Jio presents an intriguing opportunity for Reliance Industries to unlock the full value of its telecom arm. By providing shareholders with direct ownership in Jio and eliminating the holding company discount, the company aims to maximize the valuation and market potential of its subsidiary. This move aligns with Jio’s recent focus on monetization and market share gains through tariff hikes. As Reliance Industries contemplates its strategic options, a spinoff appears to be a favorable route that could generate significant value for the company and its investors in the years to come.
