RIL repositioning as consumer, tech co may push up stock price: J P Morgan

The core energy business of Reliance Industries Limited (RIL) could be staring at a multi-year slump, but "repositioning as a consumer/technology company" should continue to support stock price, according to US brokerage, JP Morgan.

After the Facebook (FB) and Silver Lake stake sale in Jio Platforms (JPL), RIL has announced a deal to sell a 2.23 per cent stake in Jio Platforms (JPL) to Vista Partners for US $ 1.5 billion. This takes the total equity flow into JPL to $ 7.95 billion for a total equity sale of 13.45 per cent.

"We expect the news flow and expectations of 'similar sized deals' to continue to drive near-term stock outperformance as it allows investors to look through near-term earnings weakness", JP Morgan said in a research.

Media reports talk about sale of the Asian Paints stake which the company has not yet confirmed this. Media reports have talked about RIL looking to sell down its five percent stake in Asian Paints which would have a market value of $ 989 million.

The report said that next week Saudi Aramco reports earnings and comments are expected about continued due diligence. RIL in its analyst call highlighted that due diligence is ongoing regarding Aramco's proposed 20 per cent stake purchase in RIL's O2C business.

J P Morgan said that the core energy business could be staring at multi-year slump, but "repositioning as a consumer/technology company" should continue to support stock price.

"While we build in a sharp recovery in refining and petchem, the global outlook is increasingly for a muted recovery, given the global overcapacity and large hit to demand, even as we come out of COVID-19. The sharp fall in crude makes the gasifier and India gas investments non-accretive", it said.

"However Retail, Jio, the FB investment with WhatsApp partnership and, now, the comments about another potential investor in Jio Platforms provide valuation support and a case for further re-rating, in our view, as they allow investors to look beyond the near-term earnings weakness", it added.

Morgan Stanley, in a report, said that RIL had previously highlighted in its earnings announcement that it had investor interest in Jio Platforms similar to the investment made by Facebook.

"We continue to see balance sheet deleveraging as one key pillar of our OW rating on RIL as the company continues to deliver its balance sheet via stake sales in subsidiaries, rights issues and slowing down new investment", it said .

Vista Equity Partners is a US private equity fund that invests in technology and enterprise software, with more than US $57 billion of capital commitments.

In a research report, Bernstein said that Reliance has focused on balance sheet deleveraging with the investments in Jio Platforms and rights issue.