The upcoming Jio Platforms initial public offering (IPO) could become a key trigger for Reliance Industries Ltd. by unlocking the value of its digital business, according to Ajit Mishra, SVP – Research, Religare Broking Ltd.
In an interaction with CNBC-TV18 on Wednesday, October 14, Mishra said that the listing, along with progress in retail and new energy businesses, could support a re-rating of Reliance over the next three years, although he cautioned that the IPO’s valuation and earnings delivery will determine the pace of gains.
Mishra said the Jio Platforms IPO would improve visibility into Jio’s standalone valuation and help narrow the holding company discount currently assigned to Reliance Industries. He also expects IPO proceeds to strengthen the company’s balance sheet by reducing debt, improving free cash flow over time.
“We believe that this proposed IPO could be an important catalyst for Reliance Industries because it would unlock greater visibility into the value of its digital business,” Mishra said. He added that the sustained upside will depend upon the IPO valuation and the earnings delivery.
According to Mishra, Religare currently factors in a 28% – 30% holding company discount for Jio within Reliance’s valuation. “That will be much narrower once we have these details in place,” he said, adding that proceeds of around ₹27,500 crore earmarked for debt reduction would increase the free cash flows, and that would ultimately benefit the company at large.
Mishra observes that Reliance Industries’ shares has spent nearly two years in a broad trading range, allowing valuation premiums across its businesses to moderate. “With the new catalyst in terms of the Jio IPO, we believe that gradually we’ll see this value unlocking happen,” he said.
Along with developments in retail, new energy and oil-to-chemicals, these factors could help the stock move towards ₹1,696 over the next 36 months, although he expects resistance around ₹1,350-1,400 in the near term.
For the full interview, watch the accompanying video
Jio IPO could trigger Reliance re-rating as debt falls and digital value becomes clearer: Religare
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