KR Choksey, a domestic brokerage firm, has commenced coverage on Jio Financial Services, Reliance Industries' financial arm, with a 'buy' rating. It set a target price of 290 per share, representing a 24% increase. Jio Financial Services is a non-banking financial organization that does not accept deposits. Retail lending, merchant lending, payments bank operations, payments solutions, and insurance broking are among its core services.
To provide a sustainable and complete variety of financial services, the company primarily targets major consumer segments, including people and small enterprises in urban, semi-urban, and rural India. Its consumer-facing subsidiaries, Jio Finance Limited (JFL), Jio Insurance Broking Limited (JIBL), and Jio Payment Solutions Limited (JPSL), as well as a joint venture, Jio Payments Bank Limited (JPBL), operate its financial services business.
KR Choksey highlights the following critical aspects for its positive outlook:
Expanding across all Segments to Increase Penetration
The Indian financial services industry is practically untapped, with only tens of millions of people served, presenting a significant growth opportunity for new entrants like Jio Financial Services. Jio Financial Services benefits considerably from Reliance Jio's (Reliance Industries' telecom company) and Reliance Retail's vast client base. With millions of Jio and Retail Mart clients already on board, the financial services division has access to a big prospective user base. This convergence of telecom and finance is likely to propel Jio Financial Services' long-term growth. The brokerage anticipates that the lending business would have an AUM of 46 billion in FY24E, with a ramp-up in the product pipeline in line with customer demands.
Furthermore, the brokerage has stated that the increased use of mobile apps and push towards UPI-based payments will enable JIOFIN to see robust traction in volumes given the parent group's strong customer base of more than 450 million telecom subscribers and 250 million retail customers as of FY23. The brokerage stated that the NBFC has reintroduced its savings and current account products using a digital platform in the payments bank market. Furthermore, the corporation claims to have redesigned its bill payment area and plans to add debit cards in the future.
According to the brokerage, the company has around 2,400 business correspondents on the ground. To fulfil the needs of customers and merchants, the company will also continue to sell insurance products through its insurance brokerage operation. In this approach, it will provide solutions for corporate clients, vendor partners, and small enterprises.
Favourable market trends and opportunities
Favourable demographics, rising prosperity, the completion of savings, and solid public digital infrastructure drive demand for financial services. Continuous progress has been made in digital adoption, as seen by the rapid development of online engagement and rising user activity across the whole funnel of smartphone-led online commerce and services.
According to the brokerage, the financial services industry will have a big digital financial offering by FY26E, including a credit opportunity of 60 trillion, a gross written premium of 15 trillion, an AUM of 79 trillion for mutual funds, and 3,892 trillion in digital payment.
The company's primary goal is to provide individualized financial products and services that are suited to the specific demands of its target market. The brokerage sees its partners as significant development drivers, capitalizing on their different business interests. The brokerage believes that these partners may play an important role in assisting the NBFC by easing the development of various pilot programmes and bespoke services to satisfy the specific needs of diverse sectors.
Recent Developments
According to PTI, Jio Financial Services and BlackRock's joint venture applied to the market regulator for a mutual fund license, and the application is currently being assessed.
Jio Financial Services and BlackRock Financial Management are among the applicants under consideration for a mutual fund license, according to a Securities and Exchange Board of India (Sebi) update on mutual fund approval status as of December 31, 2023.
Jio submitted their application on October 19, and Sebi said that it was "under process." Jio Financial Services Ltd, the freshly demerged financial services unit of Mukesh Ambani's Reliance, and BlackRock announced a 50:50 joint venture agreement in July 2023 to enter the Indian asset management industry with a USD 150 million investment.
