RIL's foray into digital business, successful fund raising to become a zero net debt company has boosted investor confidence about its growth prospects and possible synergies that could be extrapolated to retail
Mumbai: Shares of Reliance Industries Ltd fell 6.18% intraday on Wednesday after hitting record high at ₹1978.50 in early trade. The stock fell despite a slew of launches and deals announced by chairman and managing director Mukesh Ambani in the annual general meeting. The stock closed at ₹1845.60, down ₹71.05 or 3.71% on the BSE.
Investors seemed disappointed about the delay of the $15 billion deal with Saudi Aramco. Addressing the annual general meeting Ambani said that due to unforeseen circumstances in the energy market and the covid-19 situation, the Saudi Aramco deal has not progressed as per the original timeline.
“Last year, I shared with you the basis of equity investment by Saudi Aramco in our oil to chemical business. Due to unforeseen circumstances in the energy market and the covid-19 situation, the deal has not progressed as per the original timeline. Our equity requirements have already been met," Mukesh Ambani said in the annual general meeting.
However, he assured that the process may be completed by 2021. “Nevertheless, we at Reliance value our over two-decade long relationship with Saudi Aramco and are committed to a long-term partnership. We will approach national company law tribunal (NCLT) with our proposal to spin off our oil to chemical (O2C) business into a separate subsidiary to facilitate this partnership opportunity. We expect to complete this process by early 2021," Ambani added.
As planned earlier, the deal was expected to be completed by March 2020. In the AGM last year, Ambani had announced the sale of 20% stake in the oil-to-chemical (O2C) business to Saudi Aramco.
The stock was holding gains while Ambani made various announcements about its Jio Platforms business including US tech giant Google’s investment of ₹33,737 crore in Jio Platforms for a 7.7% stake. However, the stock tanked in the last half hour of trade when Ambani mentioned the Aramco deal delay.
Besides the Aramco deal delay, the stock also fell due to profit booking, according to analysts.
“RIL stock had seen a lot of position build up over the last few days. As per the AGM announcements which were quite exemplary, the heavy position unwinding and also some bit of disappointment of postponement of Aramco deal were some of the reasons. However, the stock is more likely to recoup losses over the coming months," Naveen Kulkarni, CIO, Axis Securities said.
This year so far, RIL shares have gained around 23% from the beginning of January till now.
Despite the stock markets crash post covid-19 led lockdown, the company has successfully raised funds. On 23 March, when benchmark indices had seen the biggest decline in a single day Reliance shares hit a low of ₹867.44. Since then, however, it has soared 112.76%.
A string of deals with global tech giants and marquee financial investors to become zero net-debt company boosted investor confidence on the company’s growth prospects.
“Besides the Aramco disappointment, the stock had been rallying ahead of the AGM. So, it could be a bit of profit booking as there is more clarity on RIL’s outlook and course of action for next one year. Also, most of the big announcements were already factored in," said Deepak Jasani, research head, HDFC Securities.
Few analysts also said that disappointment about missing announcements on dividend and the Google deal valuation being the same as that of Facebook, which was signed in April, also led to some sell-off in the stock during the AGM.
Meanwhile, analysts at Kotak Institutional Equities see the stock rising to ₹2,150 a share.
“RIL’s leadership in connectivity and retail businesses and recent strategic partnership with Facebook will enable it to further expand its presence in India’s digital ecosystem, which can create significant value in the long run. We expect the foray in digital commerce business to be the next big driver of RIL stock, with the valuation of legacy oil to chemical and digital services segments broadly established in a reasonable range for now," it said in a note on 15 July before the AGM
Motilal Oswal Financial Services Ltd has set a target price to ₹2,000 from ₹1,743. “Considering the company would become net debt free, we have raised the multiple for refining and petrochemical from 6 times to 7.5 times . Consumption of petroleum products also appears to be normalizing. Making adjustments for the same, our valuation for refining and petrochemical increases from ₹617 per share to ₹791 per share," Motilal Oswal said.
Also on Wednesday, rival telecom company Bharti Airtel’s shares ended 4.24% lower after Reliance Industries announced 5G foray.
“This made-in-India 5G solution will be ready for trials as soon as 5G spectrum is available... and can be ready for field deployment next year," said Ambani.
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