Jio Financial’s promise of the future

Reliance Industries first announced the demerger of Jio Financial Services from itself in late-2022. This July, it spun off the financial services businesses under the Jio brand—used in telecom and media—into a separate company. Ultimately, six other Reliance subsidiaries were housed in a company, Reliance Strategic Investments, which was renamed to Jio Financial Services (JFS).

As of 31 March, JFS had assets of ₹1.15 trillion and was registered with the Reserve Bank of India as a non-banking finance company (NBFC). A large part of this asset base was from shares held by it of subsidiaries, associate companies and joint ventures. In 2022-23, JFS’ consolidated revenues amounted to ₹1,635 crore, a fraction of leading NBFCs. Yet, it is already ranked third in terms of market cap, stemming from its other Reliance holdings and the promise in financial services.

Range of businesses

While it is unclear as to which businesses in the financial service space JFS will eventually get into, the subsidiaries it houses are startups in sectors as diverse as payment aggregation, retail finance and insurance broking. It also has a tie-up to enter the fund management business with BlackRock, the world’s largest asset manager, and news reports say the group is likely to enter the insurance business too.

It is ranked third in terms of market capitalization among listed diversified NBFCs (which, like Jio Financial, are in multiple financial services businesses). Its price-to-book value—a measure of how it is valued with respect to its assets—is still well below its peers. That doesn’t necessarily amount to under-valuation. Its valuations will be driven by its investments in Reliance entities and growth in the various financial services businesses. Eventually, the latter has to pull the valuations.

Future potential

For now, the promise of financial services apart, the ₹1.55-trillion valuation of Jio Financial Services is principally the value of its holdings in associate and joint venture companies belonging to the Reliance Group. For example, of the ₹1.15 trillion of assets on its consolidated balance sheet, its investment in the Petroleum Trust is worth about ₹60,000 crore.

Of the balance, and excluding adjustments due to the restructuring of corporate cross-holdings due to the demerger of JFS from RIL, a major chunk of assets comprises investments in subsidiaries. This is either held by the parent company (Reliance Strategic Investments, subsequently renamed to JFS). Or, it is held by a subsidiary, Reliance Industrial Investments and Holdings (RIIH), which has large investments in other Reliance associate companies. The bulk of JFS’s net profit in 2022-23 came from the ₹152 crore profit reported by RIIH.

Diversification strategy

Going forward, the focus of JFS’ valuation will be its financial services business. NBFCs operate in various business lines like housing loans, gold loans and corporate loans. Some of the largest NBFCs such as Bajaj Finance and Cholamandalam are so-called ‘diversified’ NBFCs, cutting across categories. Diversified NBFCs command higher valuations than niche ones. According to a recent BCG report, profits of the NBFC sector as a whole rose 39% in 2022-23, driven by a 68% increase in profits of diversified NBFCs and a 220% increase in profits of microfinance NBFCs. These two also drove overall credit growth in the sector. While gold loan NBFCs account for the highest return on assets, they account for just 4% of loans. In contrast, home loan NBFCs account for 53% of loans, followed by diversified NBFCs (41%). Which spaces JFS occupies will be watched.

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