RIL shares soar on news of stake sale, debt redution

Though the transaction would be value dilutive of EPS by 6 per cent for RIL’s standalone, the transaction will allay investor concerns on RIL’s high debt levels, Nomura said.

Published: 14th August 2019 08:06 AM  |   Last Updated: 14th August 2019 08:06 AM   |  A+A-

A man walks past an advertisement of Reliance Industries Limited at a construction site in Mumbai. | Reuters

By Express News Service

MUMBAI: Amidst a broader market sell-off, share prices of Reliance Industries (RIL) rose the most in a single session, up 10 per cent to close at Rs 1,275 on BSE. Buoyancy at the counter followed Monday’s announcement of over Rs 1 lakh core investment by Saudi Aramco in the company’s oil-to-chemicals business. 

The roadmap to list the consumer segments Jio and Reliance Retail within next five years, induction of global partners, and a zero net debt target by March 2021 enthused brokerages to put a buy on the stock, and upgrade target price. It is also significant to note that the stock had fallen from the 52-week high of Rs 1,417 on May 3 to Rs 1,162 before Tuesday’s bounce back.

Brokerage firm Nomura, calling the aim to be zero net debt in 18 months a big positive, retained its buy rating on the stock and target price of Rs 1,600. Domestic brokerage Motilal Oswal said the AGM announcements have gone a long way in allaying the fears it had expressed in its April report, downgrading the stock to Neutral. Calling it a new beginning, it upgraded the stock to buy with a target price of Rs 1,400.

“Although the announced Saudi Aramco-RIL deal is non-binding, it does highlight management’s intention to lower debt,” Motilal Oswal said. A decrease in net debt of Rs 100 billion would result in 1.2 per cent rise in earnings per share in FY21, it said. Though the transaction would be value dilutive of EPS by 6 per cent for RIL’s standalone, the transaction will allay investor concerns on RIL’s high debt levels, Nomura said.

“If we go by the announcements made at the AGM, the stock should perform well in next 2-3 years. Be it Jio or Reliance Retail, the company had proved it will do what it promises,” said a Mumbai-based stock broker who was present at the AGM on Monday. Mukesh Ambani had also indicated the kind of value the two consumer businesses have by saying that if they are listed, they would be among the top 10 listed firms in India.

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