In this edition, we talk about the Reliance-Jio Financial demerger and what it means for India’s BFSI sector and the company’s investors. We also talk about Sheela Foam’s acquisitions and Route Mobile getting acquired, Uday Kotak’s letter to his bank’s shareholders and about the Tata group setting up a new EV battery facility in the UK.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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This was a week of blockbusters, in a manner of speaking at least. While Friday saw the release of two much-awaited Hollywood movies—Oppenheimer and Barbie—both of which have earned rave reviews, the stock market saw the birth of what many are hoping will be a blockbuster stock in the months and years to come.
Just a day before the two movies released, Mukesh Ambani-controlled Reliance Industries Ltd formally demerged its financial arm Reliance Strategic Investments Ltd, which is set to be renamed Jio Financial Services Ltd.
Jio Financial was assigned a price of Rs 261.85 per share. At this price, the financial services arm will list with a market capitalization of Rs 1.6 trillion, or about $20 billion, making it one of the biggest such listings in India’s financial services sector. Reliance will announce in due course when the stock will begin trading on the exchanges.
If you were a RIL shareholder on the record date of July 20, you will receive one Jio Financial share for every share held.
What will this demerger change materially for the company and the country’s non-banking financial services market as a whole?
Jio Financial itself is like a holding company with investments in six companies — Reliance Industrial Investments and Holdings, Reliance Payment Solutions, Jio Payments Bank, Reliance Retail Finance, Jio Information Aggregator Services and Reliance Retail Insurance Broking. This indicates Reliance aims to enter lending and eventually branch out to insurance, payments, digital broking and asset management.
Analysts say the demerger could pose a tough challenge to the existing non-banking finance companies (NBFCs). It is expected to become India’s fifth-largest financier in terms of capital and compete directly with the likes of Paytm and Bajaj Finance.
The separation of financial services from the core business could also help Reliance attract strategic or JV partners — like what it did with Jio Platforms Ltd and Reliance Retail Ltd two years ago when it sold small stakes in the two units to tech giants such as Google and Facebook as well as a host of private equity investors.
So, on paper at least, Jio Financial’s future looks bright. But will these dreams turn into reality? Going by Reliance’s past record, there should be little doubt that the new company will reward long-term shareholders handsomely over the coming years.
But one can never be too sure of anything. So, as always, we urge you to remain cautiously optimistic.
Kotak takes a back seat
Meanwhile, one of the most well-known names in the banking industry—Uday Kotak—is set to step down from the position of the CEO at Kotak Mahindra Bank. The billionaire banker, who will continue as a non-executive director after he steps down from the whole-time role, wrote a rather emotional letter to the bank’s shareholders this week.
“Going forward, I see my role as a non-executive board governance member and a strategic shareholder with a long-term perspective of nurturing a world-class institution,” Kotak wrote.
Kotak said it was unusual in today’s world of banking to have an individual with around 26% skin in the game with disproportionate family assets in one stock, emotionally attached to living his dream of making India proud.
Kotak said that he spent most of his life at the bank and recalled how he started from scratch with very little capital in 1985, three people and a 300 sq. foot office. He also said that a person who invested Rs 10,000 with the group in 1985 would be worth Rs 300 crore today.
“We were at the right place at the right time. We are a quintessential product of the India growth story and the financial sector evolution,” he said.
People may come and go, but here’s hoping the bank keeps scaling new highs.
Sleep on it
The week also saw important deals which could create market leaders in their respective domains.
On Monday, Sleepwell mattress maker Sheela Foam announced two deals. It bought a controlling stake in Kurlon Enterprises Ltd, which markets the flagship brand Kurl-on, and a stake in Furlenco, the online furniture rental brand.
Sheela Foam is acquiring a 94.66% stake in Kurlon for Rs 2,035 crore and 35% of Furlenco for Rs 300 crore.
But why is this important? The Kurlon deal gives Sheela Foam an undisputed leadership across major product categories with its flagship brand Sleepwell’s strength in foam, and acquired brand Kurlon’s strength in rubberised coir. Sheela Foam will now command a combined market share of around 21% in the modern mattress market in India. The Furlenco deal will help Sheela Foam gain a foothold in the online furniture rental market.
In another deal, Belgium’s Proximus, which provides cloud-based telecom platforms for enterprises, said on Monday it would buy almost 58% of Route Mobile for about Rs 5,922 crore ($721 million). Proximus has also made an offer to buy an additional stake of up to 26% in Route Mobile.
Separately, Route Mobile promoters will buy a stake of up to 14.5% in a unit of Proximus for about $337 million.
“The partnership … paves the way for Route Mobile to achieve a billion-dollar annual revenue run-rate much sooner than the anticipated three-four-year time frame,” said Route Mobile CEO Rajdip Gupta, who will lead the group’s communication platforms-as-a-service activities while continuing in his current role.
Infosys shocker
The Indian stock markets maybe climbing new highs every week but the IT sector continues to struggle.
On Thursday, India’s second-largest IT services company Infosys reported first-quarter profit that missed analysts’ estimates. More importantly, it cut its revenue forecast for 2023-24, raising concerns of slowing demand.
Infosys said consolidated net profit rose 10.9% from a year earlier to Rs 5,945 crore for the April-June quarter. It halved its revenue forecast to 1%-3.5% on a constant currency basis from 4%-7% previously.
CEO Salil Parekh blamed clients delaying decisions on signing new deals and starting contracts that have already been signed. “We have seen some of the deal signings and start dates being delayed, with that we see a lot of revenue from those large and mega deals towards the later part of the financial year,” he said.
This was not all. Infosys reported a drop of 6,940 in its headcount to 336,294. That’s higher than the decline of 3,611 in the January-March quarter.
The results and the guidance cut caught analysts and investors off guard. Jefferies said the “drastic” revenue guidance cut was a “shocker”. It also said that the headcount drop suggested limited growth visibility in the near term. On Friday, shares of Infosys lost almost 10% in morning trade before recovering a tad.
To be sure, Infosys isn’t the only IT company warning about slowing demand. Last week, industry leader Tata Consultancy Services as well as No.3 HCL Tech and No.4 Wipro also issued similar warnings.
We certainly hope this is just a passing cloud and that the sky will again be awash with bright sunlight. But until then, we will keep our fingers crossed, and so should you.
Tata’s big EV bet
While TCS may be facing headwinds, the Tata Group is, well, motoring away to new glory. The conglomerate said this week it will build an electric vehicle battery plant in Britain to supply its Jaguar Land Rover factories.
Under the plan, the company will build its first gigafactory outside of India in Britain with an investment of 4 billion pounds ($5.2 billion), creating up to 4,000 jobs and producing an initial output of 40 gigawatt hours.
The new plant is expected to be built in Somerset, south-west England, while Jaguar Land Rover’s UK factories are based near Birmingham, central England.
Production at the factory, which is set to supply JLR’s future battery electric models, including the Range Rover, Defender, Discovery and Jaguar brands, is due to start in 2026, the UK government said.
Will the Tatas also set up an EV battery plant in India? We certainly hope they do, and when it happens, we will look forward to writing about it.
Market Wrap
The stocks markets continued their upward trajectory this week, with the Nifty and the Sensex scaling new highs of 19,991 and 67,619, respectively.
The Sensex closed the week up 0.94% while the Nifty gained 0.92%, even though the indices recorded a sharp correction on Friday.
The Nifty stocks that helped the index rally included the lenders State Bank of India, Yes Bank, Kotak Mahindra Bank and ICICI Bank as well as others like ITC, Larsen & Toubro and Asian Paints.
The counters that ended the week in the red included Titan, Infosys, Ultratech Cement, auto majors Mahindra & Mahindra, Bajaj Auto and Hero MotoCorp and JSW Steel. Some other counters that also left their investor poorer were Britannia Industries, Hindustan Unilever and Coal India.
Other headlines
- India bans export of non-basmati white rice
- ADB retains India’s GDP growth forecast at 6.4% for FY24
- Hindustan Unilever misses Q1 estimates as inflation dents demand
- JSW Steel Q1 net profit jumps 189% to Rs 2,428 crore
- Ashok Leyland Q1 net profit surges 747% to Rs 576 crore
- Coforge Q1 consolidated net profit up 10.4% at Rs 165 crore
- Dalmia Bharat Q1 profit falls 34% to Rs 130 crore on pricing worries
- D-Mart’s Radhakishan Damani buys personal care retail chain Health & Glow for Rs 750 crore
- Jindal Stainless acquires remaining 74% stake in Jindal United Steel Ltd for Rs 958 crore
- Jaguar Land Rover elevates Adrian Mardell as CEO
- Air India finalises 800 LEAP engine order
- SEBI unveils six mutual fund strategies under ESG theme
- Zee Entertainment forms panel to oversee operations after SEBI ban on Punit Goenka
That’s all for this week. Until next week, happy investing!
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