Reliance Industries’ stock is up 5%. This is why:
Reliance Industries’ shares rose nearly 5% to Rs 2,343 in Friday’s BSE trade after the company called for a meeting of creditors and shareholders to begin the process of demerging its financial services business.
On May 2, 2023, a meeting of Reliance Industries’ creditors and shareholders will be held to consider and approve the proposed scheme of arrangement between Reliance Industries and Reliance Strategic Investments (RSIL). Reliance Strategic Investments will be renamed Jio Financial Services following the demerger.
Reliance Industries shareholders will receive one share of the demerged entity for every one share held in the company.
Reliance Industries, led by Mukesh Ambani, announced last year the separation of its financial services business into a separate entity and subsequent listing on stock exchanges. The demerger will be accomplished through a share-swap agreement. RIL shareholders will receive one share of Jio Financial Services for every share they own.
As of March 31, 2022, the financial services business had a turnover of Rs 1,387 crore. The new company’s non-executive chairman would be KV Kamath.
Jio Financial Services plans to launch a consumer and merchant lending business to complement and supplement the traditional credit bureau-based underwriting.
Reliance Industrial Investments and Holdings Limited, Reliance Payment Solutions Limited, Jio Payments Bank Limited, Reliance Retail Finance Limited, Jio Information Aggregator Services Limited, and Reliance Retail Insurance Broking Limited are all part of Reliance’s financial services business.
“Further growth and expansion of the Financial Services Business would require a differentiated strategy aligned to its industry-specific risks, market dynamics, and growth trajectory.” The nature and competition involved in the financial services business is distinct from the other businesses, and it is capable of attracting a different set of investors, strategic partners, and customers.
Reliance Industries had also said that the creation of an independent company focusing exclusively on financial services can help “attract different sets of investors, strategic partners, lenders and other stakeholders having a specific interest in the financial services business; a financial services company can have a higher leverage (as compared to the demerged company) for its growth; and unlocking the value of the demerged undertaking for the shareholders of the demerged company.”
JM Financial, a brokerage firm, reiterated its Buy rating on the oil-to-telecom behemoth, with a target price of Rs 2,900. This implies a potential upside of 26% from current market prices.
