Shares of Reliance Industries Ltd fell (RIL) as much as 6.18% on Wednesday after hitting a record ₹1,978.50 earlier in the day, as a delay in the deal with Saudi Aramco dampened the excitement from a series of announcements. The RIL stock closed at ₹1,845.60, down ₹71.05 or 3.71%, on the BSE.
Addressing the annual general meeting virtually, chairman and managing director Mukesh Ambani said that due to unforeseen developments in the energy sector and the virus outbreak, the $15-billion 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," Ambani said.
However, he held out hope 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 O2C (oil-to-chemical) business into a separate subsidiary to facilitate this partnership opportunity. We expect to complete this process by early 2021," Ambani added.
The deal was originally expected to be completed by March 2020. In the AGM last year, Ambani had announced the sale of a 20% stake in 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. It was also due to profit-booking, analysts said.
“The 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," said Naveen Kulkarni, CIO, Axis Securities.
RIL shares have gained around 23% from the beginning of January till now. Despite the stock market crash post the lockdown, the company has successfully raised funds. On 23 March, when benchmark indices saw the biggest decline in a single day, the RIL stock 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 a 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.
Some 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, 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 raised its target price for RIL 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.