State-owned insurance giant LIC has acquired a 6.66% equity stake in Jio Financial Services (JFS), the financial services arm of Mukesh Ambani’s Reliance Industries.
LIC’s investment highlights its confidence in Jio Financial’s growth potential as Reliance aims to build a consumer-focused digital financial services business.
The insurance major has emerged as one of the key shareholders in JFS right after the company was recently listed through a demerger process.
LIC Acquires JFS Stake from RIL Demerger
As per a regulatory filing, LIC picked up the 6.66% stake in Jio Financial Services as a result of the demerger of Reliance Industries’ financial services undertaking.
RIL has spun off its financial services division to create a new standalone entity called Jio Financial Services. RIL shareholders were allotted JFS shares under the demerger scheme on a 1:1 basis.
LIC held 6.49% of RIL shares as of June 30, 2022. Following the demerger, the insurer now has an identical 6.66% stake in Jio Financial Services based on its prior RIL shareholding.
The demerger and listing of JFS marks the culmination of Reliance’s plans to build a financial services powerhouse leveraging the Jio brand.
JFS Stock Underperforms After Listing Debut
Jio Financial Services made its stock market debut on August 21, listing at Rs 265 per share on BSE, a mild 1.2% premium over the issue price of Rs 261.85.
However, the stock failed to hold on to its gains and has declined over 10% in two trading sessions since listing.
On Tuesday, JFS hit the lower circuit for the second straight day, dropping 5% to Rs 236 per share. The weak debut highlights the market’s lukewarm response to Reliance’s financial services play.
Analysts feel JFS is being priced based on its potential rather than its financial track record. LIC’s entry, however, does lend credibility to Jio Financial Services.
JFS Valued on Growth Prospects
According to market experts, Jio Financial Services is essentially being valued by investors based on its future growth possibilities rather than established financial metrics.
As a new entity, JFS does not have an operating history or financial profile for investors to assess. Its potential lies in Reliance’s massive consumer reach and ability to offer digital financial services.
However, analysts say the current valuations seem expensive given the fledgling nature of the business and the challenging macro environment.
LIC’s large investment does signify its confidence in JFS’ growth roadmap and prospects. However, investors are not yet convinced about the company’s strategy and path to profitability.
JFS Aims to Transform Digital Finance
The entry of LIC as a key shareholder ties in with Reliance Industries’ ambitions to build Jio Financial Services as a leading player in India’s digital finance space.
JFS aims to leverage Reliance’s technological capabilities and extensive consumer ecosystem to revolutionize access to financial services.
Through the Jio Financial Services venture, Reliance and LIC now have an opportunity to jointly drive financial inclusion at scale by offering innovative and affordable solutions to retail and enterprise customers.
JFS is expected to launch offerings like consumer and merchant lending, insurance, and wealth management for the masses. It can cross-sell financial products to Reliance’s vast telecom and retail consumer base.
Potential for Synergies with LIC
LIC’s investment signals an intent to develop synergies between its insurance business and Reliance’s consumer reach across commerce, telecom, and retail.
LIC is reportedly also in discussions with Reliance Retail to form a strategic partnership across insurance distribution.
As a key shareholder, LIC can aid JFS’ expansion by becoming a distribution partner. This allows combining LIC’s trust and product portfolio with Jio’s digital capabilities and customer access.
Key Takeaways
The acquisition of a 6.66% stake in Jio Financial Services provides LIC an opportunity to participate in Reliance Industries’ digital financial services ambitions.
JFS aims to harness India’s underpenetrated financial services space through the Jio ecosystem. Despite the subdued debut, LIC’s investment highlights its confidence in the company’s growth roadmap and potential for value creation.
Reliance Jio’s financial services foray will be an important space to watch as it could disrupt the market like Jio did in telecom. LIC and Reliance now have a chance to jointly drive mass-market innovation in digital finance.
