Jio Financial Services Ltd

NSE:JIOFIN

Earnings Call Analysis

Jio Financial Services achieves significant growth post-demerger.

In its first year post-demerger, Jio Financial Services saw its income rise from INR 44 crores to INR 1,855 crores, driven by higher interest and dividend income. Consolidated profit after tax surged to INR 1,605 crores from INR 31 crores the previous year. Operating expenses increased mainly due to staff costs and operational expenses. The company reported a stand-alone net worth of INR 24,437 crores. Guidance includes continued leveraging of technology and strategic investments, highlighted by a joint venture with BlackRock to expand into wealth management and broking.

Foundation and Expansion

The past year marked a significant transformation for Jio Financial Services Limited (JFSL), highlighted by the demerger from Reliance Industries Limited and subsequent listing on the stock exchanges in August 2023. This strategic move allowed JFSL to establish a robust foundation, reimagine business models, and transform the technology stack across its four key customer-facing entities: an NBFC (non-banking financial company), a payment bank, a payment aggregator, and an insurance broking entity. During this period, JFSL also initiated new business ventures, including a joint venture with BlackRock in asset management and the development of an operating lease business.

Financial Performance Highlights

For the fiscal year 2024 (FY24), JFSL reported a substantial increase in total income and profit. Consolidated profit after tax stood at INR 1,605 crores, a significant rise from INR 31 crores in the previous year. This growth was driven by higher interest income on investments, dividend income, and realized and unrealized gains on investments. Total consolidated income surged from INR 44 crores to INR 1,855 crores. Key contributors include a rise in interest income from INR 38 crores to INR 938 crores, and dividend income of INR 217 crores transferred pursuant to the demerger.

Operational Developments

Jio Financial Services has made considerable progress in its operational setup. This includes the establishment of a comprehensive governance, risk, and compliance framework across all its entities. Technology is at the core of JFSL's strategy, with investments in AI and machine learning aimed at enhancing internal processes and ensuring better customer selection. The setup and scaling of these business functions have positioned JFSL for sustainable growth in a digitally integrated financial services market.

NBFC and Leasing Activities

JFSL’s NBFC, Jio Finance Limited, adopted a digital-first approach to target consumers and businesses. Their product pipeline includes loans against mutual funds, home loans, and property loans. In terms of leasing, Jio Leasing Services Limited is set to offer solutions under a 'device as a service' model, aiming to enhance affordability and operational efficiency for digital equipment, such as laptops and TVs.

Payment and Banking Solutions

Jio Payment Bank Limited focuses on digital banking for consumers and small businesses. In the last quarter, it revamped its digital savings account offerings and launched virtual debit cards, which fueled a rapid increase in customer acquisition. The bank’s growth strategy includes scaling up its network of business correspondents. Jio Payment Solutions Limited, a payment aggregator, supports merchants by providing digital payment solutions, thereby enabling business growth through technology partnerships with banks and large enterprises.

Insurance and Asset Management Growth

Jio Insurance Broking Limited expanded its insurer partnerships to 29 companies and launched innovative insurance products, including embedded insurance for white goods. Meanwhile, the joint venture with BlackRock progressed well, with regulatory processes and team recruitment underway. Recently, the JV scope expanded to include wealth management and broking businesses, pending regulatory approvals.

Strategic Outlook

JFSL leverages its strong brand, ample capital, and close customer relationships within the Jio ecosystem to position itself as a robust player in the financial services industry. The company's core principles emphasize reputation, regulatory adherence, and the efficient return of capital. By focusing on emerging technologies, building a resilient governance framework, and developing cost-effective digital services, JFSL aims at long-term growth and prosperity for its customers.

Earnings Call Transcript 2024-Q4

[Jill Deviprasad, executive]

Good evening, everyone. My name is Jill Deviprasad, and I'm the Head of Investor Relations of Jio Financial Services Limited.

On the declaration of the results for the year ended March 31, 2024 of the company, it gives me immense pleasure to welcome the analysts, investors and our colleagues to this virtual meeting. We have with us today, our MD and CEO, Mr. Hitesh Sethia; and our Group's Chief Operating Officer, Charanjit Attra.

In this call, all participants will be in a listen-only mode. The earnings presentation is uploaded on our website, www.jfs.in and on the stock exchanges. Before I hand over the call, I would like to read out the safe harbor statement. Certain statements are forward-looking in nature. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual outcomes may vary materially from those included in these statements due to a variety of factors.

I will now hand over the call to Hitesh to discuss the business in detail.

[Hitesh Kumar Sethia, executive]

Thank you, Jill, and good evening, everyone. A very warm welcome to all of you on this call. Let me begin with a recap of an eventful first year of Jio Financial Services Limited, in which we laid the foundation blocks for the business build out while we got listed on the stock exchanges simultaneously. The demerger of JFS from Reliance Industries Limited, which was announced in November 2022, culminated in the listing of JFS on BSE and NSE in August 2023. As a part of the demerger, JFSL as a holding company and the 4 customer-facing entities, amongst others were demerged that is an NBFC, a payment bank, a payment aggregator and an insurance broking entity. The latter 3 were operating, while the NBFC had yet to commence operations prior to the demerger.

While the demerger was underway, people, process and systems were set up at the holding company and at the NBFC [Indiscernible]. The business models and technology stack of the 3 operating entities where reimagined and transformed in parallel to ensure that a strong foundation for scale and profitability is established. Further, a robust governance, risk and compliance framework were also set up across the group, a uniform and fit-for-purpose technology stack for all support and control functions across JFSL entities have also been implemented during this period.

Viewing this entire setup and team build out, the management team has remained observant about the rapidly evolving market developments and took a risk-calibrated approach to fast track our secured lending products as the focus for our NBFC. While the demerged businesses were being set up and reimagined, new businesses were also being conceptualized during this period, primarily to the asset management company and the leasing business. In July 2023, as you may all know, we have announced a 50-50 JV with BlackRock to foray into our asset management business.

Earlier this week, we are happy to inform you all that we had expanded the partnership with BlackRock to include wealth management and Broking business as well. The operating lease business was also conceptualized during this period as an additional business line to offer embedded financing solutions for home digital devices with a view to enhance affordability of such devices for our consumers.

Our approach overall is to offer embedded and digital products to our customers. Towards this, a unified app is being developed and will be launched shortly for our customers.

Let me now begin with the business updates, starting with our NBFC and our leasing subsidiary. With the foundational work done over the last few months, Jio Finance Limited, our NBFC is well positioned to capture the lending market opportunity by adopting a digital-first business model to cater to consumers and businesses. The portfolio is being built out with due consideration to customer risk profile and business dynamics. In the past quarter, the supply chain financing solution for businesses have been launched. Products, including loan against mutual fund, home loan and loan against property are in our pipeline.

On the leasing front, Jio's Leasing Services Limited will offer operating lease solutions to consumers and businesses under what we call a device as a service model. This model involves embedding a leasing solution along with installation, maintenance and our support of such digital equipment as AirFiber, laptops, television, et cetera. This model not only enhances affordability for our consumers, but also increases operating efficiencies for our leasing business line.

Moving forward on to our Payment Bank and Payment Solutions subsidiaries. Jio Payment Bank Limited provides digital banking solution to consumers and small businesses. The services offered include savings account with debit cards and a host of consumer payment solutions such as UPI, Aadhaar enabled payment services, domestic money remittances, et cetera. The business is being driven by garnering customer deposits and facilitating daily banking needs at a low cost with our digital native approach. Customers in this bank are acquired and serviced digitally and through a network of about 2,500 business correspondents as on date.

In the past quarter, the bank has revamped its digital savings account offerings and also launched virtual debit cards leading to a rapid increase in the number of customers acquired. In the coming quarters, we expect the ramp up -- we expect to ramp up our business correspondent touch points to facilitate further growth.

Jio Payment Solutions Limited is our payment aggregator business, which helps merchants, grow their business by giving them solutions to accept payments across various consumer touch points. The customer segments severed includes merchants -- retail merchants -- enterprise merchants, retail merchants and delivery merchants. Merchants will be able to access a full suite of payment products including in-store solutions such as QR codes and point-of-sale devices and online solutions, which includes our all-in-one payment gateway infrastructure, which has comprehensive payment options. The business growth here, we believe, is being driven by strategic and technology tie-ups with banks, large enterprises and creating a low-cost digital distribution architecture.

In the last year, the subsidiary has successfully launched a pilot of the Jio Voice Box for its merchant customers.

Moving on to our insurance subsidiary. Jio Insurance Broking Limited distributes insurance products of multiple insurance companies across the country digitally. The product portfolio is comprehensive and includes final property insurance for businesses and extended warranty, life, health and motor insurance for our consumers. The business growth is primarily being driven by strategic partnerships to facilitate embedded insurance, direct digital approach to customers and large enterprise relationships.

In the last year, we have continued to expand the partnership for our insurance broking entity and have increased the number of insurance company tie-ups to 29 insurance companies as of March 31, 2024. The insurance subsidiary has also launched embedded insurance for White Goods and bespoke sachet products, which are sold at the point of sale in the customer journey. Furthermore, an institutional sales station has also been set up in the last year in this subsidiary.

Next is an update on our asset management company. The operationalization of the joint venture with BlackRock, which we had announced in July 2023, is progressing well with ongoing setup of systems, infrastructure and people recruitment, including the leadership team recruitment. The regulatory process for requisite approvals is also underway. As mentioned earlier, only last week, we had announced that the scope of the JV has been expanded now to include wealth management and broking business. The launch of these additional business lines is subject to regulatory and statutory approvals.

Now I would like to talk about what we believe are our strengths and right to win. JFS will leverage best-in-class, cost-effective, modern back-end and front-end technology stack. We continue to derive benefit from the fact that we do not have any legacy technology.

Our distribution approach will be direct to [indiscernible]. Finally, we will leverage 3 important data sets that is the credit bureau data, data from the account aggregator and alternate data to aid in on [indiscernible] our customers and providing early warning signals.

From a risk management perspective, necessary frameworks and rule engines have been implemented. The framework is continuously being enhanced with machine learning models to ensure better customer selection with a defined risk appetite for each business lines.

Amongst other aspects, we believe that as Jio Financial Services Limited, we are endowed with 3 important things that are necessary to build a robust business at scale. Number 1, the Jio brand; number 2, capital; and number 3, customer adjacency from our ecosystem. With the ongoing buildout of digital, intuitive and simple product offerings across the various business lines, which we've spoken about earlier, we believe that these 3 key strengths will provide a very strong impetus for sustainable growth in times to come.

Our core principles for building out all these businesses remain unwavering. Number 1, reputation above all. Number 2, regulatory adherence in letter and spirit, given that we are multi-regulated group; number 3, return of capital; and number 4, return on capital. We will continue to build on the strength of brand capital and the wonderful team that we are putting together. We are committed to enhancing accessibility, affordability and prosperity for our customers by simplifying financial services.

The foundational work sets are base to capture the vast addressable opportunity across the spectrum of financial services that is lending, investments, payment and insurance solution against the backdrop of a strong and vibrant economy. I would also like to take this opportunity to thank all of my JFS colleagues, who have with at most dedication spend the last year setting vital foundation blocks for the various businesses that we've spoken about. I would also like to thank all our shareholders for your continued faith and support to us. Now I would like to hand over the call to my colleague and our Group's Chief Operating Officer, Mr. Charanjit Attra, who to take you through our financial performance. Charanjit over to you.

[Charanjit Attra, executive]

Thank you, Hitesh, and good evening, everyone. I am pleased to present to you the financial highlights of our first annual results as a listed company. The financial results for the quarter ended March 31, 2024, are prepared under Indian accounting standards, as prescribed by the Ministry of Company Affairs.

As you may be aware, Jio Financial Services has submitted an application for conversion of the company from an NBFC to a core investment company in accordance with the approval given by the Reserve Bank of India pursuant to the demerger.

The company is a holding number and consolidates the results of its various businesses. This includes the consumer-facing entities namely Jio Finance Limited, Jio Insurance Broking Limited, Jio Payment Solutions Limited, Jio Payments Bank Limited, and Jio Leasing Services Limited. Further, the consolidated financial statements also include the results of 2 more entities. Firstly, Reliance Industrial Investments and Holdings Limited, which is an investment holding company accounted for on a fully consolidated basis. And secondly, Reliance Services and Holding Limited, which has been accounted for as an associate.

Furthermore, during the year, JFSL through it's wholly owned subsidiary, Jio Leasing Services Limited, established a ship-leasing business GIFT City. This is a 50-50 JV called Reliance International Leasing IFSC Limited with Reliance Strategic Business Ventures Limited. The above legal entities are effectively managed by independent boards with a robust governance structure. As a part of the governance framework, the company has put in place comprehensive group level compliance, audit and risk functions for effective monitoring.

In addition, our endeavor is to optimize the cost-to-income ratios across entities by leveraging technology and efficient use of resources. Technology plays a vital role not only in the businesses as mentioned by Hitesh, but also across all governance, control and support functions. We will continue to invest in emerging technologies such as AI and ML to drive innovation and optimize all internal processes.

Moving on to the financial performance. Since the appointed date of the merger was a closing [Indiscernible] of March 31, 2023, -- the profit and loss account for the year ending 31st March 2024, was the first year of the company owning and managing the assets and liabilities that were transferred as a result of the demerger. Accordingly, the financial results of FY '24 includes the income and expenses on the assets and liabilities for the entire year.

For FY '24, our consolidated profit after tax stood at INR 1,605 crores as compared to INR 31 crores for the year ended March 31, 2023, primarily due to increasing total income and increase in the share of net profit from the associates. The total income is represented by interest income on investments, dividend on investments, realized gains on sale of investments and unrealized gains on changes in the fair value of investments. This has been offset by increase in the total expenses represented by staff expenses and other operating overheads reflecting a general increase in the business.

The stand-alone profit of the tax for the company for FY '24 was INR 383 crores as compared to INR 31 crores for the year ended March 31, 2023, primarily due to increase in total income represented by interest income, realized gain on sale of investments and unrealized gains on changes in fair value of investments, offset by increase in total expenses, representing increase in staff cost and other operating overheads in line with the setting up of the business operations of the company.

The total income in the consolidated profit and loss account increased from INR 44 crores to INR 1,855 crores primarily due to the following: Increase in interest income in the stand-alone profit and loss account and interest income on fixed deposits in the wholly owned subsidiaries to INR 938 crores in FY '24 and as compared to INR 38 crores in FY '23. Dividend income amounted to INR 217 crores on shares held by our subsidiaries, which was transferred pursuant to the demerger of the company. Fees and commission income amount INR 152 crores in FY '24, representing fee income from our subsidiaries, primarily in the insurance and the payment aggregator businesses. The total expense, excluding impairment in the consolidated profit and loss account increased from INR 6 crores to INR 325 crores, primarily due to the following: staff cost of INR 116 crores in FY '24, reflecting the cost of employees of the company and its subsidiaries in FY '24 and increase in other operating expenses to INR 209 crores in FY '24 as compared to INR 5.56 crores in FY '23, representing the first year of business operations post the demerger.

It also includes the expenses of 3 operating entities that were demerged and have been fully transformed and now are well positioned for increased and sustainable growth. Further increase in certain realized and unrealized gain on certain money market instruments classified as fair value through profit and loss account to INR 547 crores in FY '24, as compared to INR 3 crores in FY '23, resulting out of the treasury activities undertaken by the company and its subsidiaries on certain money market instruments transferred to the company and its subsidiaries as a result of the demerger.

The consolidated profit after tax for the quarter ended March '24 was at INR 311 crores as compared to INR 294 crores for the quarter ended 31st March 2023, primarily due to increase in total income and increase in the share of net profit from associates. The total income is represented by interest income on investments, dividend on investments, realized gain on sale of investments and unrealized gain or change in the fair value of investments. This is offset by increasing total expenses marginally represented by staff expenses and other operating expenses, reflecting a general increase in the business of the company. Now moving on to the balance sheet items. The company's consolidated net worth stood at INR 1,39,148 crores at the end of 31st March 2024. The company's total assets included 41.28 crore equity shares of Reliance Industries Limited represented by 24.09 crore equity shares representing 3.56% of Reliance Industries Limited, held by Reliance Industrial Investments and Holdings Limited and INR 17.19 crore equity shares representing 2.54% of Reliance Industries Limited held by Reliance Services and Holdings Limited.

The company has also made 2 equity investments during the year, INR 40 crores in its subsidiary, Jio Leasing Services Limited for it's leasing business and INR 4 crores in Jio Payments Bank Limited, thereby increasing our holding from 76.98% to 77.25%.

Moving on to the standard on profit and loss account. The total income in the stand-alone profit and loss account increased from INR 44 crores to INR 639 crores, primarily due to the following, increase in interest income on fixed deposits and certain money market instruments in FY '24 as compared to the earlier year, which was transferred to the company as a result of the demerger. Increase in certain realized and unrealized gains on certain money market instrument classified as fair value through profit and loss account to INR 255 crores in FY '24, as compared to INR 3 crores in FY '23, resulting out of the treasury activities undertaken by the company on certain money market instruments transferred to the company as a result of the demerger.

Similarly, the total expense, excluding impairment in the standalone profit and loss account increased to INR [indiscernible] from INR 6 crores, primarily due to the following: staff cost of INR 43 crores in FY '24, reflecting the cost of employee hired by the company in FY '24 and increase in other operating expenses to INR 74 crores in the current year as compared to INR 6 crores in FY '23, representing the first year of business operations for the demerger. Similarly, the stand-alone profit after tax for the quarter ended 31st March 2024 was INR 78 crores as compared to INR 71 crores for the quarter ended 31st December 2023. This was primarily due to increase in the total income. The total income is represented by interest income on investments, realized gains on sale of investments and unrealized gains on changes in the fair value of investments.

Further, the increase in total income was offset by increase in total expenses, a marginal increase though, which is represented by staff expenses and other operating overheads reflecting a general increase in the business. The company's stand-alone net worth stood at INR 24,437 crores as of 31st March 2024. With this I would like to hand over the call back to Jill. Thank you so much.

[Jill Deviprasad, executive]

Thank you both for the presentation. And thank you, everyone, for joining this call. Again, our earnings presentation is uploaded on our website, www.jfs.in and stock exchanges. On behalf of JFSL, this concludes our earnings call. You may now disconnect your lines.