On January 15, 2024, Jio Financial Services Ltd (JIOFIN) posted a consolidated net profit of Rs 227 crore for the third quarter of fiscal year 2024 (Q3 FY24). These figures, however, cannot be directly compared to those of the previous year. Notably, there was a significant reduction in profits compared to the second quarter of fiscal year 2024 (Q2 FY24), influenced by the lack of dividend income and income from associates and joint ventures, and heightened operating expenses.
Following the announcement of these financial results, JIOFIN's share price plunged 6.5%, dropping to Rs 249.45 on January 16. This report marks the company's second financial disclosure since its stock market debut in August 2023.
Earnings Call Highlights
JIOFIN's post-earnings call shed light on its initial strategies and offerings. The firm is set to revolutionize the financial services sector by introducing digital products that are both innovative and user-friendly, aimed at merchants and everyday consumers. Utilizing the extensive customer network and advanced technology of Reliance, JIOFIN intends to roll out a variety of loan products, prioritizing secured loans in alignment with the latest policy updates from the RBI.
Financially, the firm is well-equipped to expand its lending operations. As of September end 2023, it boasted a robust net worth of Rs 1,15,500 crore, a significant resource that it plans to use for scaling its lending services. Additionally, the firm is anticipated to maintain an excellent credit rating (AAA), positioning it to secure debt financing at competitive rates. This advantage could set it apart from other non-banking financial companies (NBFCs) and fintech firms in the industry.
Strategic Initiatives and Partnerships
JIOFIN has established significant collaborations in the insurance sector, partnering with 27 life and general insurers for its insurance brokerage services. In Payment Services, the firm has revamped its platform to introduce a digital savings bank account, alongside a preliminary rollout of its debit card.
Additionally, JIOFIN has ventured into a 50:50 joint venture with Blackrock, aiming to establish an asset management company (AMC). Both the firms are investing $150 million each in this joint initiative.
Moreover, JIOFIN is in the process of transitioning from a NBFC to a Core Investment Company (CIC), for which it has filed an application with the Reserve Bank of India (RBI).
Outlook and Valuation
Given that JIOFIN has recently branched out from Reliance Industries and its operations are still ramping up, its current quarterly earnings don't fully reflect its potential. Its significance should not be underestimated, especially considering the dominance of Reliance in its operational sectors. For instance, Jio Telecom, a unit of Reliance, rapidly grew to be the leading telecom operator in India in a mere seven years. Similarly, Reliance's retail arm has become one of the largest in the nation, excelling in reach, scale, and profitability.
Regarding its valuation, JIOFIN's stock is currently trading at 1.4 times its book value. The firm benefits from robust backing by Reliance, a substantial capital foundation, and the ability to offer cross-selling of financial products to a vast customer base in retail and telecom. These factors open up significant avenues for growth.
While JIOFIN's performance in the financial services sector will evolve over time, it's poised for substantial value and wealth generation, buoyed by the promoter's proven expertise in managing large-scale and complex projects across various industries. Long-term investors are advised to keep a close watch on JIOFIN's stock, as it presents a potentially lucrative opportunity in the evolving financial landscape.
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