Jio Financial Services-Blackrock : A 50-50 Joint Venture

Reliance, as we all know, has become the greatest of industries in India in the past few years. Starting out with a textile business, its expansion to become a multinational conglomerate has been phenomenal and an inspiration to each and every Indian to think big and outside the box.

Reliance is the largest public company in India by market capitalization and revenue, and the 100th largest company worldwide. It is India's largest private taxpayer and largest exporter, accounting for 7% of India's total merchandise exports. Its areas of work include energy, petrochemicals, natural gas, retail, telecommunications, mass media, and textiles.

ABOUT JIO FINANCIAL SERVICES

Quite recently around 2006, Reliance had launched its financial service industry named “Reliance Financial Limited'', which was a 100% subsidiary of Reliance Capital Limited and was registered under RBI as a non-banking financial company. JFS's purpose is to acquire liquid assets to provide adequate regulatory capital for lending to merchants, consumers, etc., and incubate other financial services verticals such as asset management, insurance, digital broking, and payments for at least the next three years of business operations.

The Bonanza Portfolio expert said that the demerger decision is basically taken to keep the financial service business distinct from other businesses and may attract a different set of investors, strategic partners, lenders and other stakeholders.

To dig deep into it and have a better understanding, an NBFC or a Non-Banking Financial Company is a company registered under the Companies Act, of 1956. The motive behind the emergence of NBFC was to meet the financial needs that weren’t met by the banking system of India. Their elementary roles include providing credits, mobilizing savings, and providing investment services and payment services as well.

THE DEMERGER

Earlier this month Reliance renamed “Reliance Financial Limited” to “Jio Financial Services” and demerged it from Reliance Industries to make it operate as a separate company to gain profits.JFSL plans to launch a consumer and merchant lending business based on proprietary data analytics to complement and supplement the traditional credit bureau-based underwriting.

Share price pattern of Jio Financial Services before and after its demerger with Reliance Industries.

As it is evident from the graph, on the 19th of July that is before the demerger, the prices were peaked out to be INR 2841.85. After the announcement of the demerger, on the 20th of the same month, the prices hit the lowest which was on the 25th of July and the share prices being INR 2485.80. The expected cost of Jio Financial Services can be projected to be around INR 273 after its listing is done. The current share price is INR 2528.00.

THE COLLABORATION

The very recent news that has come up on the 26th of July 2023 is the collaboration of Jio Financial Services with BlackRock, an American multinational investment company. This amalgamation aims to form Jio BlackRock. Jio BlackRock would be a 50:50 joint venture which would include BlackRock’s deep expertise and talent in investment and risk management, product excellence, access to technology, operations, scale, and intellectual capital around markets, while JFS contributes local market knowledge, digital infrastructure capabilities and robust execution capabilities. JFS and BlackRock are targeting initial investment of US$150 million each in the joint venture.

The fundamental motive of the partnership remains to transform India’s asset management industry through a digital-first offering and democratize access to investment solutions for investors in India. They claim to provide innovative yet affordable tips and tricks related to investments to the Indian investors which is something that is still undiscovered in the Indian financial markets.

To share BlackRock’s intention about the partnership, Rachel Lord, Chair & Head of APAC, BlackRock, said:

"India represents an enormously important opportunity. The convergence of rising affluence, favourable demographics, and digital transformation across industries is reshaping the market in incredible ways. We are very excited to be partnering with JFS to revolutionize India’s asset management industry and transform financial futures. Jio BlackRock will place the combined strength and scale of both of our companies in the hands of millions of investors in India."

Speaking of this collaboration, Mr Hitesh Sethia, President and CEO, of JFS, said:

"This is an exciting partnership between JFS and BlackRock, one of the largest and most respected asset management companies globally. The partnership will leverage BlackRock’s deep expertise in investment and risk management along with the technology capability and deep market expertise of JFS to drive the digital delivery of products."

Jio BlackRock will be a truly transformational, customer-centric and digital-first enterprise with the vision to democratize access to financial investment solutions and deliver financial well-being to the doorstep of every Indian.”

With this demerger, Jio Financial Services will emerge as the fifth financial service in India as per the networth.

THE PATH AHEAD

So while the NBFC sector has a lot of players like Power Finance Corporation Limited, Shriram Transport Finance Company, Bajaj Finserv, Mahindra & Mahindra Financial Service, Muthoot Finance Ltd and many more, but even the big fishes like the Tata Group and the Mahindra group have not had the pleasures of making huge profits in this sector. If JFS wants to crack the market it has to beat the leaders that rule the market, Bajaj Finserv is one of them.

It’s just the future that would let us know if this collaboration came out to be a success or not. JFS is at a very nascent stage, and it would be tough to estimate whether it will scale up to the levels investors expect it to and if valuations are justified.