Reliance Industries went public back in 1977. Then in 2005, four companies were demerged, including the creation of three new companies — Reliance Communications, Reliance Natural Resources and Reliance Energy. Thursday, July 20, 2023, will be another big day for the oil-to-retail conglomerate as it will demerge its financial services business from the company. Stock exchanges will be conducting a special pre-open session for Reliance for the same tomorrow.
The Mukesh Ambani-led company had set July 20 as the date to determine eligible shareholders for the allotment of shares of the demerged entity. Under the scheme, one share of the demerged entity Jio Financial Services will be allotted to shareholders for every 1 share they hold of Reliance Industries.
The stock exchanges will hold a pre-open session tomorrow for the price discovery of Reliance Industries shares post the demerger. RIL's closing price in the previous session, which is on Wednesday, July 19, will be taken as the reference for the session.
The difference between RIL's closing price today and the price that it settles at after the pre-open session tomorrow will be considered as the share price of Jio Financial Services. For instance, if we assume RIL closes at Rs 2,500 today and then settles at Rs 2,400 after the pre-open session tomorrow, then the share prices of Jio Financial Services will be determined as Rs 100.
Post the demerger, the shares of Jio Financial Services will be included temporarily in 19 NSE equity indices, including Nifty 50, Nifty 100, Nifty 200 and Nifty 500 among others.
This is being done following the revision in the methodology of Nifty equity indices for handling corporate actions involving demergers. Under this revised methodology, the demerged company is retained in the index. The spun-off business is also included in the index, but at a constant price, which will be derived as mentioned above. The spun-off business, which is the newly listed entity, will be removed from the index, after the end of the day on the third day of its actual listing, according to NSE.
Similarly, shares will also be listed temporarily on 18 indices of the BSE.
“Jio Financial Services is currently a small part of the overall Reliance Industries operations. But, it has big plans as a non-banking finance company. It further plans to foray into insurance, digital payment and asset management verticals,” noted Eesha Shah, special situations analyst at Axis Securities.
The brokerage currently values Jio Financial Services at RIL's treasury stock valuation of Rs 1,08,597 crore.
"The company's total outstanding shares stand at 676.6 crores, implying each share's valuation would be Rs 160 per share," said Shah.
Nuvama Institutional Equities analysts Jal Irani and Iqbal Khan see the demerger of Jio Financial Services as value unlocking similar to RIL's demerger of four entities back in 2005.
"After the split, shareholder wealth swelled 38 per cent. Should the market have a deja vu moment this time too, shareholders' wealth could potentially increase by 3-5 per cent," the Nuvama analysts said.
Nuvama has valued Jio Financial Services at Rs 168 per share.
RIL shares had closed at an all-time high of Rs 2,820.45 on the NSE on Tuesday. In intraday trading on Wednesday, the stock hit a further high of Rs 2,844.90, before pulling back to around Rs 2,805 level in noon trading.
At Tuesday's record-high closing, RIL's market capitalisation touched Rs 19.1 lakh crore or $232.8 billion. At this valuation, RIL is the world's 42nd most valuable firm ahead of large multinational corporations like Toyota, McDonalds, AstraZeneca, Shell and Cisco. In Asia, it is the 8th most valuable firm.
Apart from the demerger, investors will also closely eyeing RIL's quarterly earnings announcement on Friday, which will weigh on RIL's share price in the near-term.