Aramco deal collapse hits RIL shares, market cap loss at Rs 72,000 cr

Analysts said market was factoring in a full $75 bn valuation for O2C segment. Irrespective of the refining and petrochem cycle, the key catalyst for the market was Aramco deal closure

Shares of Reliance Industries fell by 4.42 per cent on Monday after the company announced during the weekend that its plans to sell stake in its oil to chemicals business to Saudi Aramco has collapsed.

The company lost Rs 72,000 crore of investors’ wealth on Monday as its shares closed at Rs 2,363 a share and total market capitalisation fell to Rs 14.99 trillion.

Reliance Industries and Saudi Aramco had signed a non-binding letter of intent in August 2019 for a potential 20 per cent stake acquisition by Saudi Aramco in the O2C business at a valuation of $75 billion. On Friday, the company announced that it is withdrawing its application with the National Company Law Tribunal (NCLT) for segregating the O2C business from RIL due to the “evolving nature” of RIL’s business portfolio.

Analysts said the deal collapse was the main reason for RIL’s share fall today even as the rest of the market also fell. "There was widespread selling in the market and the Sensex crashed over 1,600 points intra-day, which shows temporary hiccups could be seen in the near term,” Shrikant Chouhan, Head of Equity Research at Kotak Securities.

Analysts said the market was factoring in a full $75 billion valuation for the O2C segment. Irrespective of  the refining and petrochemical cycle, which could change now, and after a less aggressive launch of the JioPhone Next, the key catalyst for the market was the closure of the Aramco deal. “The focus would now shift to listing timelines of Jio and Retail and possibility of potential tariff hike in the telecom business,” said a Credit Suisse report.

The report said the upside risks to its neutral rating and the target price of Rs 2,450 for Reliance Industries is any delay in new capacity addition in refining in the industry, faster mean reversion to margins, and faster-than-expected reversal in cycle through pick-up in demand or delay in new supply of petrochemicals.

On Jio, the report said the monetisation of user base and higher-than-expected increase in industry-wide tariffs, would be positive for the company while for the retail, the faster-than-expected rollout of the new commerce initiative through kirana partnerships, and sustenance of high growth in retail, and (further stake sale in Jio or Retail at a higher valuation than what it had factored-in.

The downside risks to RIL stock, as per Credit Suisse are delayed recovery in volumes and margins in both refining and petrochemical divisions due to the pandemic; slower-than-expected ramp-up of home broadband, JioFiber, enterprise and Internet of Things business segments, and lower-than-expected price increases in the telecom industry in FY23.