RIL share price: Most brokerages go gung ho on RIL stock; but some are cautious

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NEW DELHI: Reliance Industries’ largest FDI deal with Saudi Aramco, the roadmap to become a zero net-debt company by March 21, the unveiling of four new growth verticals and plans to unlock value in retail and telecom businesses had a host of foreign brokerages going gung ho on the stock. Some, however, were still cautious on the stock.

All through past three months, the stock was facing repeated rating cuts, as Dalal Street had become wary of its ballooning debt load and negative free cash flow. The Aramco deal, which is estimated to bring in roughly Rs 1,00,000 crore for a 20 per cent stake in RIL’s oil-to-chemicals (OTC) business valued at $75 billion, has helped alley those concerns.

The Mukesh Ambani-led company’s announcement was followed by a statement from a senior Aramco official, acknowledging a letter of intent between the two companies. He, however, said the talks were at ‘a very early stage’.

But brokerages turned optimistic overnight.

“We note that the transaction is still at a non-binding letter of intent stage, and is likely to be completed only by March 2020. Assuming a $15 billion payout from Aramco to RIL standalone and 20 per cent of petchem/refining Ebitda being attributable to Aramco, we estimate on a ball-park basis, the transaction to be value-dilutive by about 6 per cent for RIL’s FY21 standalone EPS,” Nomura India said.

“But, in our view, this transaction will allay investor concerns over RIL’s high debt levels. The completion of this transaction will reduce RIL’s net debt by nearly $15 billion,” it said.

Reliance net debt stood at nearly $22 billion at the end of FY19. Nomura now has a price target of Rs 1,600 on the stock. This target, if achieved, will take the market value of Reliance Industries to Rs 10 lakh crore from a tad below Rs 8 lakh crore on Tuesday.

RIL is on course for capex discipline and right-sizing of balance sheet, UBS said. The foreign brokerage said the company was taking significant steps towards deleveraging. It also took note of RIL’s plans to list Reliance Jio and Reliance Retail, and set a price target of Rs 1,500 on the stock.

RIL’s Tectonic Shift:

Addressing his company’s 42nd AGM, Ambani said the transaction with Saudi Aramco and a separate transaction with BP will together bring in Rs 1.1 lakh crore in total commitments and generate significant strategic value. He expected the two transactions to be completed within this financial year.

Morgan Stanley said it is time to take a relook on the counter. It upgraded the stock to ‘overweight’ from ‘equal weight’ with a price target of Rs 1,349. The brokerage noted that the stock has fallen 12 per cent in last three months due to weak refining and chemical margins.

The refining market is rebalancing, and a cheaper ethane feedstock could drive PE upside, it said, adding that faster asset monetisation could surprise Street.

Macquarie has upgraded RIL to ‘outperform’, following a stream of bullish news flow. It raised the target on the counter to Rs 1,370 to reflect Aramco’s premium bid for the company’s refining and chemicals businesses.

“Our cautious stance on free cash flow (FCF) outlook has not changed, but perhaps this is moot in view of growing optionality,” it said.

Credit Suisse has maintained its ‘underperform’ rating on the counter but raised its target price to Rs 1,028 from Rs 995.

“Saudi Aramco’s deal is a non-binding LOI for 20 per stake at an enterprise value of $75 billion. This is higher than our value of $61 billion and we increase the target market cap by $2.8 billion,” it said.

The number of ‘buy’ calls on the counter had dropped to nine from 10 in last three months, while the number of brokerages giving ‘outperform’ ratings declined to 11 from 14. Execution of the roadmap holds key for the stock, analysts said.

At 9.40 am on Tuesday, the scrip traded 8.4 per cent higher at Rs 1,259.



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