Shares of Reliance Industries Ltd. shed over 4% in intraday trade to Rs 2,370 apiece, after the company and Saudi Aramco have agreed to re-evaluate the latter’s proposed investment in RIL’s oil-to-chemicals business. Reliance will withdraw its application with NCLT for segregating the O2C business. The decision to re-evaluate the proposed investment follows RIL’s recently announced plans to develop green energy giga complex at Jamnagar.
Saudi Aramco, officially the Saudi Arabian Oil Company, is a Saudi Arabian public petroleum and natural gas company based in Dhahran. As of 2020, it is one of the largest companies in the world by revenue.
Credit Suisse
- Maintains ‘neutral’ with the target price kept unchanged at Rs 2,450; an implied return of -0.94%.
- Market was factoring in 100% probability of Aramco deal going through after the company’s chairman was inducted into RIL’s board of directors.
- Disclosure on Aramco deal not going through in the current form and in the near term is a negative surprise.
- Listing timelines of Jio and Retail and potential tariff hike in telecom business are the key focus areas after the Aramco deal not going throught.
Jefferies
- Maintains ‘buy’ with the target price cut to Rs 2,880 from Rs 3,000 earlier; an implied return of 16.44%
- RIL and Aramco deciding to not proceed with the proposed transaction comes as a disappointment.
- The cancellation has no bearing on RIL’s balance sheet.
- The deal could have set a valuation benchmark of $75 billion and led to re-rating of the O2C business.
- Lowered our multiple on the O2C business to reflect mid-cycle margins.
- Value the business at $70 billion ($80 billion earlier) at 7.5x forward EV/EBITDA (vs 8.5x earlier)
Bernstein
- Maintains ‘outperform’ with the target price kept unchanged at Rs 2,830; an implied return of 14.42%
- Energy landscape has fundamentally changed since the MoU was signed in 2019
- Reliance has highlighted the difficulty in separating Jamnagar from the clean energy business as a reason to not complete the transaction.
- Do not believe that failure of the transaction will limit Reliance ability to fund growth in clean energy.
- Value the O2C business at $69 billion based on peer multiples rather than the Aramco implied valuation of $75 billion.
- Failure to conclude the MoU with Aramco is likely to trigger a negative stock reaction in the short term, but it does not alter the investment case or target price.
Of the 37 analysts tracking the company, 21 maintained ‘buy’, 11 maintained ‘hold’ and five maintained ‘sell’ recommendations. The overall consensus price of analysts tracked by Bloomberg implied an upside of 10.1%.
