Mumbai: Reliance Industries Ltd. may offer investors a cheaper way to own Jio Platforms Ltd. after the telecom unit lists, with analysts saying the parent company’s shares reflect a substantial discount.
Reliance’s share price implies a roughly 36% discount on its two-thirds stake in Jio, according to Nimish Maheshwari, co-founder of independent research firm Beat The Street. He sees about 25% as sustainable, in line with how the market values telecom rival Bharti Airtel Ltd.’s holdings in its listed subsidiaries.
Such discounts are common for parent companies because their shareholders only get indirect exposure to the businesses they own. Once a subsidiary lists, investors can simply buy its shares directly.
While these discounts could go as high as 50%, there’s no strong technical or fundamental justification for such a steep discount here, said Thea Jamison, managing director at Change Global Investment. “Moreover, how Reliance Industries chooses to monetise its stake in Jio Platforms going forward could be another significant source of value creation for shareholders.”
Jio may seek a valuation of about ₹11 lakh crore ($114 billion) in an initial public offering as soon as this month, Bloomberg News reported. That would value Reliance’s stake at about ₹7.3 lakh crore, equivalent to about 45% of the parent’s current market value, according to Bloomberg calculations.
Yet brokerages including Motilal Oswal, Yes Securities and Nuvama value the stake at ₹331-450 per Reliance share, implying it accounts for around 27% to 37% of the parent’s share price.
Reliance shares have fallen 23% this year, compared with a 14% decline in the benchmark Nifty 50 Index, as higher oil prices, elevated global bond yields and a weaker rupee weigh on Indian equities. The company controlled by billionaire Mukesh Ambani is particularly exposed to those pressures with its businesses spanning energy, consumer spending and capital-intensive sectors.
The potential upside for Reliance shareholders from any narrowing of the discount will depend on how Jio trades after its debut.
“The key trigger would be transparent price discovery rather than immediate monetisation,” Maheshwari said. “A higher public-market valuation for Jio would increase the visible value of RIL’s holding and could, in turn, help narrow the holding-company discount.”
A clearer separation of Jio’s valuation would also make Reliance’s remaining businesses easier for investors to assess, said Chokkalingam G., founder of Equinomics Research. He expects the listing to help drive a rerating as investors begin valuing Reliance’s underlying businesses more distinctly.
