‘JFSL Starting With Natural Advantage': DRChoksey Finserve's Deven Choksey On Jio Financial Services' Bullish Start

Jio Financial Services Ltd (JFSL), a Mukesh Ambani company that was demerged on July 20 from parent Reliance Industries, was valued at nearly $20 billion (or Rs 1.66 lakh crore) and was priced around Rs 261 per share. With this, JFSL has become the second largest non-bank lender in terms of market capitalisation, after Bajaj Finance, which has a market cap of Rs 4.6 lakh crore. 

Based on its total market value, the price determined by the market has ranked JFSL as the 32nd most valuable company in India. This puts JFSL ahead of companies like Tata Steel, Coal India, HDFC Life, SBI in terms of their market worth. Ambani's financial services arm has ex-ICICI executives KV Kamath, Hitesh Seth, and Isha Ambani as its core team members.

The special trading session on July 20 was meant for the price discovery of its demerged entity JFS. While the actual listing of the stock will take a month or so, Govindraj Ethiraj, founder, The Core, spoke to Deven Choksey, MD and Chairman of DRChoksey FinServ to get a sense of why the market is highly confident about JFSL, a business that barely exists.

Speaking on Reliance and Jio Financials stacking up against its own siblings, Choksey said, "I feel that the Jio platform or Jio financial services right now is going to be the largest market provider going forward if they end up achieving the numbers." 

Here are the edited excerpts from the interview: 

Why is the market so bullish on JFSL, a company which had no real revenue at this point?

I think the very important thing in this particular business is NBFC (non-bank financial company) business and they are required to have the borrowers on one side and the money on the other side. So, when the money is being distributed to the borrowers, there you require the technology platform. So if Reliance Jio platform has the ability to provide the fintech platform, along with the pay bank facility and Reliance industry has the loan book available with the ability to lend money, of course, I think they are raising money from elsewhere also. On the other side, you have the borrowers in the form of different subscribers or the customers. Reliance Retail has about 18,000+ tools setting, where the retail customer is consuming goods worth about Rs 3 lakh crore on an yearly basis. So they are the ones, the typical merchants who are physically associated with the Reliance Jio for selling the Jio Mart, under the grocery services, they would be their consumer of credit as well. Money Control, which is their financial portal wherein they have the highest number of subscribers. They are the ones I think would physically buy the financial products like insurance, mutual funds, depository services or brokerage for that matter, and even the low luggage shares or market funding products, etc. 

And finally, the Jio platform where you have 45 crore subscribers, who are consuming a variety of e-commerce packages including video, entertainment, gaming and other ecommerce activities. All in all, this company is starting with a very natural advantage of having a higher number of customers already acquired in different verticals and at the same time, Rs 1,40,000 crore worth of net worth that they are assuming to begin with, is basically larger than the network of Axis Bank and Kotak Bank. So that is also an advantage coming to them. And as I explained, I think the Jio platform with the technology around, is giving you the age because of the ability to roll out these services in a quicker time. In the next 3-5 years time, I believe that the company could be in a position to address the market of around Rs 7-10 lakh crore net worth, which would be placing them among the highest in the industries.

When you say net worth, you're referring to a market value or actual net worth?

I think about Rs 17,000 crore worth of the net worth is the actual net worth of the company which is basically invested in Reliance's shares, 6% stake of Reliance. And if you actually look at, I think the cash net worth in the hand that they have plus I think the market value of 6% of Reliance's shares that you had. This total figure comes out to Rs 1,40,000 crore.

 

And you're also assuming that they will pull business from other NBFCs (Non-Banking Financial Company) including Bajaj, who is the biggest right now?

My feeling says that I think they will not require to, because currently Bajaj has its own set of customers. They have got their own alliances with different manufacturers for the selling of the products. Be it LG, Samsung or whoever has been in the FMEG business. Bajaj, I think has already got the affiliated relationship with them, plus Bajaj has already brought the customers onto their platform. So frankly, the need for the customer to shift away from Bajaj and go to Jio would arise only when Jio ends up offering them a significantly large amount of benefits vis-a-vis Bajaj, which I don't think is an immediate reality. In my reading, I think there will be an equal opportunity for players like Jio, along with the existing players who are technologically equipped to handle the business including Bajaj. So, I would think that since the economy is growing from 3.5 trillion to say 10-12 trillion dollars, in the next 12 years time, I think everybody would have enough opportunity to learn because I think the size of the take itself is growing. So, each and every bank will have their role to play. Each and every NBFC will have a role to play. So I don't think it will be at the cost of one NBFC to another NBFC, or one bank to another. As long as they are technologically equipped to handle the subject efficiently, I would think that they would have enough amount of business to talk about for each one of them.

 

Financials have a huge weight in our indices, portfolios, whether it's retail or institutional. How do you see Reliance and its financial arm which is Jio Financials stacking up against its own siblings, which is Reliance industries or its telecom company and so on?

That must be a loaded question. I would think that the financials would probably surpass the existing Reliance or to say business if they end up reporting the numbers, which I just now spelt out. Because if they end up reporting 10 lakh crore on the book, at the end of the fifth year from now and on that, a lot of them end up reporting the name of around 80,000 crore to one lakh crore. My reading says that they would be far more exceeding the market value of the current Reliance's O2C business, not the retail and the Jio platform business, but only O2C business. The O2C business is currently being valued at around Rs 550 in the current market, which according to is a very cheap discount. I feel that the Jio platform or Jio financial services right now is going to be the largest market provider going forward if they end up achieving the numbers which I'm talking about.