In this article, we can see Jio Financial Services as a Potential Multibagger Stock as on April 2024.
Jio Financial Services
JFSL is a NBFC registered with RBI. The company is a holding company and will operate its financial services business through its consumer-facing subsidiaries namely Jio Finance Limited (JFL), Jio Insurance Broking Limited (JIBL), and Jio Payment Solutions Limited (JPSL), and joint venture namely Jio Payments Bank Limited (JPBL).Jio Financial Serv. Mr. Kundapur Vaman Kamath is the current Independent Director and Non-executive chairman. Ms. Isha M. Ambani is the current Non-Executive Director.
Website of Jio Financial Services
Location of Jio Financial Services
Jio Finance is headquartered in Mumbai. The company has branches in many parts of India.
Products & Services
- Loans
- Insurance Brokering
- Payments Bank
- Payment solution
POSITIVES to become a multibagger
- JIOFIN plans to democratize financial services for 1.42 billion Indians, giving them access to simple, affordable, innovative, and intuitive products and services.
- JIOFIN to get all the required approvals and licenses in the next 6 months which will help to ramp up the businesses faster.
- Brand & Reputation of Mukesh Ambani led Reliance wing to create monopoly & strategic partnerships evident in the success of Reliance Industries, Jio Telecom, Jio Mart, etc
- Lending business to see an AUM of around INR 46.0 Bn considering the expected industry AUM of INR 38,000 Bn in FY24.
- The AI and Analytics-driven businesses will create an enriched customer profiles for its tailored offerings.
- JIOFIN has no debt compared to 5 years ago when its debt to equity ratio was 137%.
- The increased use of mobile apps and push towards UPI-based payments will enable JIOFIN to witness robust traction in volumes given the strong customer base of the parent group, which has above 450 Mn telecom subscribers as well as ~250 Mn retail customers as of FY23.
- JIOFIN plans to primarily target key customer segments – unserved and underserved individuals and small-sized businesses in urban, semi-urban, and rural India to offer a sustainable, and comprehensive range of financial services.
- JIOFIN plans to offer simple transparent financial services products catering to rapidly evolving customer needs.
- JIOFIN’s earnings growth over the past year (5034.6%) exceeds its 5-year average (63.5% per year).
- JIOFIN has become profitable over the past 5 years, growing earnings by 63.5% per year.
- Its insurance broking business offers insurance led solutions to the walk-in customers at retail store outlets servicing them both digitally and with dedicated sales associates and trained staff.
- Considering the rise of digital payments in the country, Jio Financial is offering personal and consumer durable loans through online channels.
- Under its Jio Finance Merchant Trade Credit Facility, the company offers credit line for registered merchants of JioMart Partner – B2B Wholesale. It provides unsecured credit to finance inventory purchases.
- JIOFIN has launched an end-to-end digital journey by offering personal loans for salaried and self-employed individuals.
- Facebook (Meta) invested $5.7 billion into JIOFIN increases the credibility & confidence in business growth.
- Jio Finance Ltd. will leverage best-in-class technology with no legacy book or technology.
- In July 2023, JIOFIN has announced a joint venture with its partner BlackRock and has committed an initial investment of up to USD 150 Mn each towards this joint venture.
- JIOFIN will also continue to offer insurance products through its insurance broking business to meet the needs of consumers and merchants.
Value Investing
- Jio Financial Services has been growing earnings at an average annual rate of 63.5%, while the Diversified Financial industry saw earnings growing at 19.3% annually. Revenues have been growing at an average rate of 63.3% per year.
- Jio Financial Services has high it has net margins of 87.1% are higher than last year (60.5%).
- JIOFIN has high quality earnings & growth over the past year (5034.6%) exceeded the Diversified Financial industry 15%.
Profit & Loss
| Mar-23 | Mar-24 | |
| Sales | 45 | 1,854 |
| Expenses | 6 | 296 |
| Operating Profit | 39 | 1,558 |
| OPM % | 88% | 84% |
| Other Income | 10 | 429 |
| Interest | 0 | 10 |
| Depreciation | 0 | 22 |
| Profit before tax | 49 | 1,956 |
| Tax % | 37% | 18% |
| Net Profit | 31 | 1,605 |
Negatives
- Any delay in getting business licenses will have an impact on the overall business operations.
- The high valuation of the Company may be impacted by various factors such as complex structure, lack of control, dividend taxation, etc., leading to potential variations in the Holdco discount provided to JIOFIN as an investment holding company.
- JIOFIN’s ROCE & ROI are lower than 1.5 which is very much below industry standards.
- JIOFIN is expensive based on its PE Ratio at 140 compared to the Indian Diversified Financial industry average 24.
- JIOFIN operates in various business verticals through its subsidiaries joint ventures and associates, and its inability to effectively manage its diversified operations may have an adverse effect on its business.
- JIOFIN may be considered as part of the RIL group for the purpose of the large exposure framework applicable to commercial banks, as stipulated by the RBI. Its borrowings will also be counted towards exposure to the group including RIL and its subsidiaries, which limits its ability to avail debt funding from scheduled commercial banks which may adversely affect its business.
Warren Buffett Checklist
| Factor | Value |
| Economic Moat | Good |
| Growth | Good |
| Valuation | High |
| Debt | Good |
| Integrity | Good |
Summary
The company has the potential to become a multibagger in the order of 500-2500% in a 5-10 year term.
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