With a $20 billion arsenal, Mukesh Ambani successfully disrupts NBFC hierarchy with JFSL demerger.

Billionaire Mukesh Ambani, the king of disruption, is once again making waves in the financial world. Just as Bajaj Finance became India’s most valued NBFC after a $40 billion reverse merger of HDFC with HDFC Bank, Reliance Industries (RIL) has launched a $20 billion initiative to shake up the pecking order in the shadow lending industry.

After separating from incubator RIL, Jio Financial Services (JFSL) has already claimed the second spot on the list of India’s largest NBFCs by market capitalization, with a value of Rs 1.66 lakh crore (approximately $20.3 billion).

Bajaj Finance’s market cap now stands at Rs 4.6 lakh crore. When JFSL is listed on stock exchanges, it will move into the second position, surpassing Cholamandalam Investment and Finance, which currently holds the spot with an m-cap of Rs 96,000 crore.

JFSL will now be larger than Bajaj Holdings & Investment, SBI Cards, Shriram Finance, Muthoot Finance, and even fintech giant Paytm.

Ambani’s JFSL now ranks as the 32nd most valuable company in India, surpassing giants like Tata Steel, Coal India, HDFC Life, and SBI Life.

The value of JFSL was determined in a special pre-open session based on shares of RIL. The pre-listing price of the stock was Rs 261.85 per share.

Ambani’s game plan for JFSL involves bringing in former ICICI executives KV Kamath and Hitesh Sethi, along with his daughter Isha Ambani, to form a dream team that will disrupt NBFCs by adopting a digital-first approach. With regulatory licenses already in place for key businesses, Ambani intends to enter the lending business while also incubating other financial services verticals, such as insurance, payments, digital broking, and asset management. These initiatives will likely come through organic growth, joint-venture partnerships, and potential acquisitions.

JFSL is expected to launch a consumer and merchant lending business soon, using proprietary data analytics to complement traditional credit bureau-based underwriting.

Ambani plans to leverage Reliance’s vast omni-channel presence in consumer businesses to support his ambitions. Reliance Retail boasts 18,040 retail stores and a registered customer base of 249 million, while Jio has 428 million subscribers.

“With access to a wide retail footprint and strong subscriber base, Reliance has a competitive edge in terms of data that it can leverage to scale up its financial services business. Reliance has access to far more data than credit bureaus with its 439.3 million Jio customers compared to the 219 million total live customers in the bureau, suggesting ample data to support lending decisions,” said Sonal Gandhi from Centrum Broking.

JFSL’s solid capitalization will ensure that the company does not need to raise external equity capital for a reasonably long time, limiting potential dilution concerns.

Given RIL’s AAA credit rating in India, JFSL is expected to receive the same rating, providing low-cost borrowing opportunities and positioning the company to compete with banks, NBFCs, and fintechs in the retail space, according to analysts.

The Ambani family is expected to unveil JFSL’s business plan at the company’s upcoming AGM.

JFSL’s entry is seen as a threat not only to market leader Bajaj Finance but also to fintechs like Paytm, as highlighted by global brokerage firm Macquarie’s downgrade of Paytm in June.

“In comparing Bajaj Finance with Jio today, the roadmap may be indicated at the AGM or on the listing day. But Reliance has always performed with big numbers and big rollout plans, so I am sure the plan is big,” said Sushil Choksey from Indus Equity Advisors.

In the quarter ended June 30, Reliance Strategic Investments, which will be renamed JFSL, reported a consolidated profit of Rs 331.9 crore.

The demerger of JFSL into a separate entity was chosen by the Ambani family to allow for a differentiated strategy tailored to the specific risks, dynamics, and growth trajectory of the financial services business, which is distinct from RIL’s other businesses in oil, chemicals, retail, and telecom.

The demerger will also give JFSL greater leverage for growth compared to RIL and is viewed as a value-unlocking exercise for shareholders.

(Note: The recommendations, suggestions, views, and opinions expressed by experts are their own and do not represent the views of Economic Times.)

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