India's largest telecom operator Reliance Jio leading the way in the recent tariff hikes unlike in the past while keeping feature phone tariffs unchanged shows focus on monetisation and subscriber market share gains, according to Jefferies.

Jio raised mobile data tariffs by up to 25% from July 3.

These moves create a case for Jio’s possible public listing in 2025, the brokerage says in a note.

“RIL could look to IPO or spin off Jio, as it did with Jio Financial Services (JFS),” the note says, adding that Jio could list at a $112 billion valuation.

The decision to spin off or IPO Jio hinges on balancing the upside potential of full value unlocking in the spin off with the lower controlling stake, says Jefferies.

“With Indian market imputing 20-50% holdco discount to listed subsidiaries, controlling owner's less than majority stake in JFS at the time of spin off and strong performance of RIL and JFS stock post spin off lead us to believe Jio could be spun off,” the brokerage says.

Through the IPO route, with 33.7% minority shareholding in Jio, RIL could fulfill IPO requirement by listing 10% of Jio, as per Jefferies. Since Jio is past its peak capex phase, the entire IPO could be an Offer for Sale by minorities, it says. However, 35% of an IPO is reserved for the Retail segment that would require large mobilisation from retail investors (unsubscribed retail portion can be allocated to HNI/QIB based on their oversubscription), the brokerage adds.

RIL could also look to spin off Jio and list it after a price discovery, says Jefferies. “Shareholders in RIL would receive their proportionate shareholding in Jio adjusted for RIL's 66.3% stake in the latter. This would avoid the holdco discount and enable better value unlocking benefiting RIL shareholders. The owner's stake in Jio would fall to 33.3% on listing,” it says.

“The owner's stake in the recently spun-off JFS was 45.8% on listing. The strong performance of the stock prices of RIL and JFS since the event, as well as the less than majority stake of the owners in JFS, may tilt the owner to adopt the spin-off route for Jio,” says Jefferies.

Investors, domestic as well as foreign, appear to favour the spin off route for Jio's potential listing, according to Jefferies. “Their primary concern is the holdco discount of 20-50% in India but steeper (50-70%) for conglomerates in Korea and Taiwan. The large retail investor mobilisation in the case of an IPO is another concern. The lower controlling stake in Jio on spin off could be addressed by buying a part of the shares offered by private equity funds after the spin off,” it says.

Assuming Jio is spun off from RIL's stable, fair value for RIL would be ₹3,580, implying 15% upside, says Jefferies. In IPO, RIL's fair value would fall to ₹3,365, it adds.

jio valuation

Jio could list at $112 billion valuation: Jefferies