Will RIL’s O2C business restructuring bring cheer to investors?
Morgan Stanley believes that RIL’s de-merger plan is a step towards monetisation and acceleration of its new energy and material plans into batteries, hydrogen, renewables and carbon capture.
Brokerages retained their bullish view on Reliance Industries (RIL) after the company announced that it has initiated the process of carving-out O2C (oil-to-chemicals) business into an independent subsidiary.
Morgan Stanley believes that RIL’s de-merger plan is a step towards monetisation and acceleration of its new energy and material plans into batteries, hydrogen, renewables and carbon capture. The decision point to the next leg of multiple expansion and clarity on the next investment cycle. The global firm is ‘Overweight’ on RIL with a price target of Rs 2,252.
Shares of Reliance Industries traded 1.79% up at Rs 2,043.35 at around 2.21 pm (IST), while the benchmark BSE Sensex traded 0.35% higher at 49,919. The latest shareholding pattern showed that retail investors and high net worth individuals (HNI) had a 7.98% and 1.12%, respectively, stake in the company as of December 31. On the other hand, promoters held a 50.54% stake in the company, while mutual funds held 4.85%.
The reorganisation will enable the focused pursuit of opportunities across the O2C value chain, improve efficiencies through self-sustaining capital structure and a dedicated management team, and attract dedicated pools of investor capital, according to a company presentation filed with the stock exchanges.
The O2C business unit holds Reliance’s oil refinery and petrochemical assets and retail fuel business but not upstream oil and gas producing fields such as KG-D6 and textiles business.
Once completed, Reliance Industries Ltd (RIL)-the company founded by Dhirubhai Ambani in the late 1960s-will house only the upstream oil and gas exploration and production business, including the KG-D6 block, financial services, group treasury and the legacy textile businesses, and act as a holding company of the group.
The retail business is held in Reliance Retail Ventures Ltd and telecom and digital ventures are nested in Jio Platforms.
Kotak Institutional Equities sees the fair value of RIL at Rs 2,050 after the announcement. “RIL has initiated the process of reorganisation of O2C business into a new subsidiary subject to statutory approvals, which are expected to complete by Q2FY22. The assets will be transferred for a consideration of $25 billion of loan besides $12 bn of equity from RIL, in order to allow efficient upstream of cash flows through dividends, interest and debt repayment. The reorganisation seems to be intended to raise capital among other strategic priorities—we are not sure of the rational for another large fundraise, as the group has adequately deleveraged its balance sheet.”