Jio's Game-Changing Move: Disrupting the Financial Services Sector with BlackRock

Jio's Game-Changing Move: Disrupting the Financial Services Sector with BlackRock


India's powerhouse, Reliance Industries Ltd, has a remarkable track record of outperforming its peers in every sector it ventures into, be it retail, telecom, oil, or natural gas. And now, brace yourselves for their grand entry into the Non-Banking Financial Company (NBFC) sector through their wholly-owned subsidiaries, Reliance Strategic Investments Ltd. (RSIL) or Jio Financial Services Ltd. (JFSL). The question on everyone's mind is - will Mukesh Ambani, the visionary leader behind Reliance, once again disrupt this industry, just like they did in the telecom sector?

The excitement began on 17th July when the National Stock Exchange of India announced the demerger of JFSL, a fully owned subsidiary of Reliance Industries Ltd. Soon, it will be listed on the exchanges alongside Nifty 50 stocks. The demerger had received approval from the National Company Law Tribunal (NCLT) on 28th June and was posted on their website on 5th July, setting the financial world abuzz by 8th July.

In short

In short

The $300 million Joint Venture (50:50) between JFS and BlackRock aims to provide tech-enabled access to innovative investment solutions for Indian investors, making them a formidable player in the financial services industry.

The successful demerger of JFSL allows it to expand and flourish as a separate entity, boosting its potential for long-term value creation.

JFSL's history of disrupting the telecom industry through Jio raises expectations for similar performance in the NBFC sector, especially with the expertise of the former chairman of ICICI Bank leading the way.

The partnership between JFS and BlackRock could present a significant challenge to existing Asset Management companies in India, as they seek to capture a share of the market.

The collaboration between JFS and BlackRock isn't an isolated occurrence; similar successful collaborations have reshaped industries in the past, introducing new possibilities and financial solutions to the Indian market.

A groundbreaking event took place on 12th July when the National Stock Exchange (NSE) conducted a 45-minute special pre-open session for Reliance on the 20th of July. This session, unlike regular market hours, played a crucial role in determining the price of the soon-to-be-listed subsidiary of RIL. It marked a historic moment as it was the first time ever in the history of the Indian stock market that the share price of a newly listed company was decided by market participants during the pre-open session.

So, what's the price at which JFSL shares will be available?

Unlike an initial public offering (IPO), the price discovery for JFSL shares was done during the special pre-open session. The listing price was revealed to be a constant ₹261.85, derived from the difference between Reliance's closing price of ₹2,841.85 on Wednesday and the price of ₹2,580 during the special session on Thursday. Interestingly, the estimated price of ₹160 to ₹190 had far surpassed Dalal Street's expectations, making it an exciting revelation for investors.

The valuation was also derived from the Thursday session, making it the most valuable NBFC after the Bajaj-Twins - Bajaj Finance and Bajaj Finserv. At a valuation of around 1.77 Lakh Crore or $20 Billion, it ranks among the top 40 most valuable companies by market capitalization in the Indian stock market. At NSE, JFSL will be listed at a price of Rs. 273 per share.

However, analysts have estimated the share price to be between 160-190, but on the 20th July session, Dalal Street rated it more than 30% premium.

Why is that? Reports say JFSL owns 6.1% of RIL shares, which boosts its valuation. As a result, it may receive an AAA-rating for now. In the first quarter of the financial year 2023, they reported a net profit of Rs. 145 Cr on revenue of Rs. 215 Cr. In FY21 and FY22, the company reported net profits of 1.23 Cr and 1.68 Cr, respectively. Since then, the numbers have grown manifold. Moreover, it's just the first quarter of the year, and we may see even better numbers in this fiscal year.

Jio BlackRock Joint Venture

Do you know the mighty Black Rock?

BlackRock, the largest Asset Management Firm globally with above $10 Trillion Assets under Management, surpassing Vanguard funds, has now joined hands with JIO, setting the stage for a potential disruption in the Financial Service Industry in India. Earlier, Black Rock had a tie-up with DSP Mutual funds, which ended in 2018.

With the successful demerger of JFSL as a separate entity, the company is set to expand and flourish, creating long-term value. Additionally, they've announced an exciting $300 million Joint Venture (50:50) with BlackRock, aiming to provide millions of Indian investors with tech-enabled access to affordable and innovative investment solutions. Means both Blackrock and Jio will invest $150 Mn (1200 Cr INR) each in this Joint Venture. Jio BlackRock will leverage BlackRock's expertise in investment management, risk management, product excellence, technology, operations, and market insights, while JFS will bring in-depth local market knowledge, digital infrastructure capabilities, and robust execution skills. Together, they present a new player in the Indian market, armed with a unique combination of scope, scale, and resources.

This move could pose a formidable challenge to the existing Asset Management companies in India. As it stands, the top 10 AMCs in the country already control a whopping 80% of the total assets.

The move to separate JFSL as a distinct entity was strategic, as it allows NBFCs like JFSL to borrow money from banks and financial institutions without showing debt on RIL's balance sheet, which investors and shareholders would surely appreciate.

Given Jio's history of disrupting the telecom industry, there's reason to believe that the entry into the NBFC sector will bring about somewhat similar performance. Particularly, with the former chairman of ICICI Bank at the helm, known for taking the bank to the No.1 position during his tenure (now at the 2nd position after HDFC Bank), history might repeat itself in a fresh challenge - this time in the NBFC space, not a bank. The potential for greatness is undeniable, making this partnership all the more intriguing.

Have there been any previous collaborations similar to JSFL and Black Rock in the past?

This isn't the first time this has happened; it has occurred successfully on numerous occasions in the past.

In this exciting journey, HDFC Bank partnered with the cool Standard Life to give birth to HDFC Life Insurance - a force to reckon with in the insurance world. Meanwhile, SBI, the country's biggest public sector bank, joined hands with GE Capital to bring you the ultimate credit card experience - SBI Cards and Payment Services Limited.

But wait, there's more! ICICI Bank, known for its bold moves, formed a great bond with Prudential plc from abroad, leading to the birth of ICICI Prudential Life Insurance - a dream team that's been setting new standards in the life insurance game.

Not to be outdone, Bajaj Finserv flaunted its financial magic and joined forces with Allianz, creating the formidable Bajaj Allianz General Insurance. And let's not forget the brilliant move by Kotak Mahindra Bank, teaming up with Old Mutual to create a financial masterpiece - Kotak Mahindra Old Mutual Life Insurance.

The Aditya Birla Group also stepped up to the plate, partnering with Sun Life Financial to create Aditya Birla Sun Life Insurance - a dynamic duo all set to redefine the insurance landscape.

In this thrilling financial adventure, these partnerships bring together unique strengths and global expertise, offering a wide range of financial solutions that captivate the Indian market like never before.

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