With $20 billion weapon, Mukesh Ambani just disrupted NBFC hierarchy

Following a demerger from incubator RIL, Jio Financial Services (JFSL) has already occupied the No.2 slot in the list of India’s largest NBFCs by market capitalisation at Rs 1.66 lakh crore or about $20.3 billion.

Bajaj Finance now has a market cap of Rs 4.6 lakh crore. Upon listing on stock exchanges, JFSL will take over the No.2 slot ahead of Cholamandalam Investment and Finance which is presently the second-largest NBFC with an m-cap of Rs 96,000 crore.

JFSL will now be bigger than Bajaj Holdings & Investment, which is a holding company, SBI Cards, Shriram Finance, Muthoot Finance and even fintech payments platform Paytm.

Ambani’s new chocolate boy is now the 32nd most valued company in India, bigger than giants like Tata Steel, Coal India, HDFC Life and SBI Life.

The value of JFSL was derived in a special pre-open session today in shares of RIL. The stock’s pre-listing price came out to be Rs 261.85 per share.

What is Ambani’s gameplan for JFSL?
By bringing ex-ICICI executives KV Kamath and Hitesh Sethi along with daughter Isha Ambani, the billionaire has his dream team already in place to disrupt NBFCs by adopting a digital-first approach.With regulatory licenses for the key businesses already in place, Ambani is eying the lending business but will also incubate other financial services verticals such as insurance, payments, digital broking and asset management. The new initiatives will come not just through the organic route but can also come via joint-venture partnerships as well as inorganic opportunities.

The financial services enterprise is expected to soon launch a consumer and merchant lending business based on proprietary data analytics to complement and supplement the traditional credit bureau-based underwriting.

To achieve his ambitions, Ambani will piggyback on the nation-wide omni-channel presence of Reliance’s consumer businesses.

Reliance Retail has 18,040 retail stores and 249 million registered customer base while Jio’s subscriber base is at 428 million customers.

“With access to a wide retail footprint and strong subscriber base, Reliance has a competitive edge in terms of data that it can leverage to scale up its financial services business. There are 219mn total live customers in the bureau vis a vis Jio’s subscriber base of 439.3mn customers, suggesting access to far more data which can support lending decisions,” said Centrum Broking’s Sonal Gandhi.

JFSL’s own strong capitalisation will ensure that the company would not need to raise external equity capital for reasonably long period of time, thereby limiting any dilution overhang.

As RIL has AAA rating from credit agencies In India, JFSL will draw the same rating from the group strength. It should enable JFSL to borrow funds at low cost and compete with banks, NBFCs and fintechs in retail space, according to analysts.

The Ambanis are expected to reveal their business plan in the company’s AGM which may happen next month.

JFSL’s entry is being seen as a threat not only to the market leader Bajaj Finance but also to fintechs like Paytm.

Earlier in June, global brokerage firm Macquarie had downgraded Paytm and cited JFSL’s entry as one of the threats to its business.

“I am not comparing Bajaj Finance with Jio today because the roadmap may be indicated at AGM or on listing day. But Reliance has always performed with big numbers and big rollout plans, so I am sure the plan is big,” said Sushil Choksey of Indus Equity Advisors.

In the quarter ended June 30, Reliance Strategic Investments, which is being renamed to JFSL, reported a consolidated profit of Rs 331.9 crore.

Why the demerger?
The Ambani family chose to spin off JFSL into a separate entity because the 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 like oil to chemicals, retail and telecom owned by RIL.

The demerger will also allow JFSL to enjoy higher leverage, as compared to the RIL, for its growth. For shareholders, it is being seen as a value-unlocking exercise.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)