PremiumMUMBAI: Shares of Reliance Industries Limited (RIL) traded largely flat on Thursday, ignoring the fine imposed by markets regulator on the Ambani brothers. Having opened higher, the stock traded at Rs1,999.40 apiece as of 1040am on the National Stock Exchange, down 0.1% from previous close.
The Securities and Exchange Board of India (Sebi) on Wednesday imposed a penalty of Rs25 crore on Mukesh Ambani, Anil Ambani, other individuals and entities, for non-compliance of takeover norms in a two-decade-old share issue in the company.
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The fine has been imposed for not making regulatory disclosures when they collectively raised their shareholding in Reliance by nearly 7% by subscribing to a January 2000 issue, as per news reports.
The fined amount, however, is small and the company’s business prospects remain strong.
"We see Reliance Industries as a proxy for India's consumption growth story. FY21-23 EBITDA CAGR of 25% in Jio and 43% in retail drive B2C contribution to 49% of consol EBITDA. An unlevered balance sheet, proceeds from O2C stake sale and US$ 6bn annual FCF FY22E onwards open interesting options. New growth engines: digital services, e-comm and O2C have large addressable markets," analysts at Jefferies India Limited wrote in a note.
Consumer-oriented businesses such as telecom and retail have been doing well. RIL's oil-to-chemicals vertical too has been witnessing improvement, with recovery in demand and realisations as economic activities pick pace. The segment's profits are expected to rise sequentially, backed by higher margins.
Current crack spreads imply refining margins have bottomed out and will rise to $7.5-8.0/barrel in FY22 from $5/barrel in FY21, feel analysts. Petrochemical margins too have bounced back, with a return to pre-pandemic levels imminent. Global petrochemical demand is forecast to grow 4% annually over the next decade, while domestic consumption will grow faster at 8% over the next decade.
The expectations of stake sale in the O2C business has kept investor interest alive. Reliance hiving off its oil-to-chemicals (O2C) business which indicates an acceleration in monetisation. The re-organisation plan is expected to be approved by 2QFY22, said analysts at Bernstein. This will enable RIL to facilitate discussions of sell down to Saudi Aramco (up to 20%) and potentially other investors, they added. The separation of business also is considered to be a move towards a potential IPO, which will further unlock value for RIL shareholders.
Lower-than-anticipated tariff hikes in Jio, elevated cash burn in e-commerce, lower refining and/or petrochemical margins, FCF disappointment and inadequate returns in new investments are risks to be noted, analysts at Jefferies added.
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