However, the share price targets haven’t changed much, as analysts say the deleveraging balance sheet and expected free cash flow generation over the next few years will be enough to fund the planned forays of the led company. Mukesh Ambani in new energies and new business. companies.
The stock fell 4.22% to a low of Rs 2,368.20 on BSE. At that price, the company’s market cap was down to just over Rs 66,000 crore.
Credit Suisse, which has a neutral rating on RIL, said closing the deal was a key catalyst for RIL. “The deal took into account 100% probability that the agreement with Aramco will be concluded after the induction of the president of Aramco to the board of directors of RIL. The key question for investors was only about the form of the deal: will it be a whole in this context, today’s disclosure of the Aramco deal that does not materialize in the current form and in the short term is a negative surprise, ”he said.
The market took into account a total valuation of $ 75 billion for the O2C segment, regardless of the refining and petrochemical cycle, which could change now, he said.
Jefferies reduced the valuation of RIL’s O2C business to $ 70 billion and also lowered its share price target by 4% to reflect that. However, he added that the cancellation of the Aramco-RIL agreement has no impact on its balance sheet and that RIL has low leverage; it has the capacity to finance the revolving incursion.
The news could be negative for RIL’s share price, JPMorgan said. This would have a limited impact, however, given that the deleveraging at Reliance is over, he said.
The two companies had signed a non-binding letter of intent in August 2019 for a potential sale of 20% stake in RIL’s O2C business to Saudi Aramco for $ 15 billion. RIL has now withdrawn its request to the NCLT to separate its O2C business into a separate entity, while indicating that it may work with Aramco on broader areas of cooperation and will make future disclosures as appropriate.
“RIL’s decision to withdraw the sale of its stake in the O2C business delays the anticipated reduction of its exposure to the O2C value chain through the inorganic route. However, we do not see any impact on our fair value from this development as we attributed $ 61 billion EV to the refining and petrochemicals business, at a significant discount from the valuation of the previously proposed transaction, ”said Kotak Institutional Equities.
Deven R Choksey, MD at KR Choksey Investment Managers, said Reliance Industries is expected to generate Rs 2.5 lakh crore in Ebitda over the next two years, which would be enough to undertake future investments and manage its O2C trade balance sheet, including included for expansion into specialty chemicals and also to further reduce debt.
He said that this decision would benefit RIL, as it would not benefit from a holding discount as envisaged earlier due to the creation of the subsidiary O2C. In addition, Reliance is advancing on a much larger scale in the new materials business and this likely requires them to view the merger differently and not limit it only to O2C activities with Aramco.
“If you look at Aramco’s point of view, what they think is that this oil business is not the future. They also see the future in the new materials sector. Aramco has already announced its intention to become the largest supplier of green hydrogen fuels. In the future. Basically, RIL remains in a good position. Low market sentiment due to the revaluation of the Aramco deal should be used as an opportunity to buy again at lower levels, ”he said.