Jio, Retail news to boost RIL shares

The firm on Saturday informed exchanges about the National Company Law Tribunal approving the planned demerger, as well as the record date for the same. The announcement came a day after the RIL board decided to cancel 0.1% equity held by shareholders in unlisted Reliance Retail for a consideration that values it at almost ₹8 trillion.

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Both filings came after the close of trading on Friday, and the stock may react favourably to them on Monday, analysts said. “The expectations of listing of Jio Financial, now that the record date has been fixed, could see the stock test ₹2,700 when markets open Monday,” said Rajesh Palviya, head of research for technical and derivatives, Axis Securities. “Follow-up buying over the next few sessions is likely after the stock tests that level.” This puts the stock on track for as much as a 2.5% gain on Monday at opening from Friday’s close of ₹2,633.60.

The RIL stock has underperformed the benchmark Nifty 50, rising a mere 3.4% in 2023 so far against an almost 7% jump in the Nifty, which closed at 19,331.8 points on Friday. The demerger and anticipated listing will unlock value for RIL’s 3.64 million shareholders.

The company has fixed 20 July as the record date to ascertain shareholders eligible to receive the demerged entity’s shares. RIL also announced on Saturday that Reliance Strategic Investments Ltd (RSIL), to be rechristened Jio Financial Services, will issue and allot one share for every RIL share.

Brokerages JP Morgan and Jefferies had earlier valued Jio Financial’s share price at ₹189 and ₹179, respectively.

The Jio Financial announcement came a day after RIL said it would cancel and extinguish the equity share capital held by those other than the promoter and holding company Reliance Retail Ventures Ltd in Reliance Retail. Those whose shares will be cancelled, holding around 0.1% equity, will receive ₹1,362 per share.

The price has been determined based on the EY and BDO valuations of ₹884.03 and ₹849.08 apiece. Based on EY’s valuation, the conglomerate’s retail business is worth ₹7.9 trillion or $96 billion.

“These announcements could have a positive impact on the stock that has underperformed the benchmarks,” said Chandan Taparia, a derivatives and technical analyst at Motilal Oswal Financial Services Ltd (MOFSL). “My assumption is the price could rally to ₹2,700-2,750 in the short term.”

The RIL stock hit a record high of ₹2,856.15 on 29 April last year, days after foreign brokerage Morgan Stanley upgraded the price target on the stock citing its new focus on hydrogen.

However, Axis Securities’ Palviya and MOFSL’s Taparia remain divided on the stock testing and breaking its record, which is still 8.5% above its Friday close. “I think the stage is set for a new high in the medium term,” said Palviya. Taparia remained non-committal on the price rising above his target of ₹2,700-2,750.

JP Morgan, in a report in May, said RIL’s ongoing capex “should allow it to scale up… its petrochem, telecom, and retail segments. New energy is likely a multi-year opportunity, but we do not see it as material to the investment case of the next 12-18 months. We expect this year’s AGM to likely focus on Jio Financial Services.”

It also noted that the stock’s one-year performance was at a 10-year low but that Jio Financial demerger and AGM should help narrow the underperformance. “The March quarter FII sell-down (-1.1%) was the largest q/q FII sell-down in 10 years, and the aggregate FII holding in RIL stood at a 6.5-year low,” JP Morgan said.

The markets will also react favourably to the induction of former Union finance secretary Rajiv Mehrishi as an independent director and Isha Ambani as non-executive directors on the board of Reliance Strategic Investments Ltd, Palviya said. Isha Ambani is also part of the executive leadership team of Reliance Retail Ventures.

Updated: 10 Jul 2023, 12:04 AM IST