Jio Financials: Does the Demerger from Reliance Create Value?

Assessing the demerger of Jio Financials from Reliance, Chetan Shah notes its intricacy, with possible gains and risks in tow. As the value for shareholders remains uncertain, this strategic move is anticipated to exert a substantial influence on the Indian financial services landscape.

- Chetan Shah

The demerger of financial services businesses of Reliance Industries is a very interesting development. A lot has been reported about it, however, much of it scratches the surface. Let’s focus on the key issues of this demerger.

Background to Demerger

RIL considers the following five as its main business segments:

There is not much synergy between the old brick-and-mortar businesses of oil, gas and petrochemicals and the new multichannel and consumer-focused businesses, namely retail, digital services and financial services.

The reasons for housing the new unrelated businesses under the RIL umbrella could have been (1) access to public and institutional equity and debt funds while in the early incubation stage and (2) access to RIL’s long-established shared resources such as HR, administration, office infrastructure and so on.

Why Demerge Now 

Now in terms of the maturity of the new businesses i.e. asset and revenue size (if not strong profits), systems and other institutional aspects such as independent management strength, RIL considers these as ready to float on their own strength. Capital market reception to the financial services business is also key to the decision to demerge.