RIL to stay in focus ahead of demerger record date, Q1 results

The record date for demerger is 20 July and RIL shareholders will be issued Jio Financial Services (JFS) shares in a ratio of 1:1 (one equity share of Jio Financial Services for every share held in RIL). This led to an investor rush to buy RIL shares and be rewarded with shares of the financial services business that may see good gains post its listing, said analysts.

Analysts have been valuing Jio Financial Services shares in RIL SoTP (sum of the parts valuations) in the range of ₹125-225. Analysts at a foreign brokerage based on core net worth of Jio Financial Services and its value of stake in RIL, have valued Jio Financial Services in the range of ₹90,000 crore to ₹1.5 trillion, implying a ₹134-224 per share in RIL’s SoTP valuation.

However, analysts are waiting for more clarity to emerge on valuations. J.P.Morgan Equity Research said in a recent report that it expects RIL’s annual general meeting to lay out a more granular and detailed roadmap for strategy in Jio Financial Services.

The starting point for valuation would be the 6% treasury stake in RIL, that JFS would own, and what optionality investors want to give to JFS, which would partly depend on what the AGM says on the strategy and growth plans.

“Our implied value for JFS currently stands at ₹189 per share and is based only on the treasury shares of RIL,” said analysts at J.P Morgan.

Nuvama analysts valued treasury shares at ₹168 per share (6% of market price) based on RIL’s closing price on 14 July. They said RIL stock could be least impacted by this demerger and instead see an upside of 3-5%.

After the record date of demerger, the focus for shareholders will shift to the core business performance and Q1 results to be declared on 21 July, said analysts.

Deepak Jasani, head of retail research at HDFC Securities, said there could be more buying seen in the RIL stock before the record date of demerger, however, post the date, the stock prices will be influenced by the Q1 result performance.

Analysts expect weakness in the company’s oil-to-chemicals business during Q1 led by softness in gross refining margins (GRMs). This will be compensated for by over-recoveries in auto fuel sales. The retail and Jio (telecom business) are likely to report good performance.

Kotak Institutional Equities’ analysts expect RIL’s consolidated Ebitda to decline 2% sequentially (1% year-on-year). They said due to weak GRMs, standalone Ebitda is likely to decline 14% sequentially (29% y-o-y). But consolidated oil-to-chemicals (O2C) Ebitda would likely decline 8% sequentially on auto fuel over-recoveries.

Ebitda is earnings before interest tax depreciation and amortisation.

For Jio’s telecom business, Ebitda is expected to rise 3% sequentially (15% year-on-year), and retail business Ebitda is pegged to grow 3% sequentially and 16% y-o-y on increased store footprint.

Nevertheless, analysts are positive on the company’s outlook. Analysts at Morgan Stanley Research said in a recent report that RIL is starting to monetise multiple investments, and is simultaneously still deploying capital in new areas. The narrative will shift on earnings positively to an upgrade cycle, they said. Net debt is nearing peak and closer to Ebitda run rate and analysts see multiple positive catalysts ahead for RIL.

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Updated: 16 Jul 2023, 07:27 PM IST