A positive for shareholders

The calling of a truce by the brothers has come as good news for shareholders of the two groups.

Cancellation of all non-compete agreements between RIL and ADAG means the two groups are now free to venture into new areas for business.

RIL had been scouting for acquisitions and at the end of March had as much as Rs 21,874 crore in cash and cash equivalents on its books. For it, the deal opens possibilities of entering businesses ranging from telecom to financial services.

But, chances of the group restarting its telecom business are considered slim, given the stiff competition and the presence of many strong companies in the sector, analysts said. Financial services, they said, offer a better option given the low entry barriers.

In the past, the group has contemplated entering into arrangements with the likes of Citi to set up a non-banking finance company to help it launch co-branded cards and offer consumer durable finance to aid its Reliance Retail.

The non-compete clause, however, came in the way.

On the other hand, ADAG can now pursue acquisitions such as that of MTN, the South African mobile operator which Anil Ambani wanted to acquire but had to drop the plan after RIL threatened to block the sale.

“From RIL's perspective, the news is good," said the equities head of a large research house. "We expect the company to grow at robust rates, as well as generate huge cash (over Rs 20,000 crore annually) in the current and next fiscal, given that its K-G (Krishna-Godavari) gas and new refineries have started production. A key overhang for the RIL stock from a longer-term perspective was the uncertainty over the use of this future cash flow towards sustaining growth rates thereafter. In that context, the news is very good for the stock, as RIL now has more avenues to invest these funds. However, this has to be followed up with action.”

Market concerns cleared
The peace pact also partly sets to rest some concerns the market had on the stocks of the two groups.

“RIL and Reliance Natural Resources Ltd (RNRL) will expeditiously negotiate gas supply arrangements in accordance with the orders of the Supreme Court. We hope to conclude these negotiations very soon,” the RIL statement said.

For ADAG, the signing of the gas supply agreement will be a positive for RNRL and its stock, as it will enhance the company's revenue visibility.

Likewise, it will pave the way for its Reliance Power to move ahead with other formalities relating to the mega gas-power project in Dadri, Uttar Pradesh.

Since analysts value power stocks based on their current capacity and the progress in new projects, among key things, it should have a positive rub-off on Reliance Power's stock as it progresses towards financial closure.

Since Reliance Infrastructure holds a large stake in Reliance Power, analysts expect a positive rub-off on its stock valuations, too.

ADAG will also be free to enter into segments such as oil and gas, refining and petrochemicals, businesses where RIL operates.

Besides, ADAG will now also be able to venture into new areas, but market experts don't expect any big announcement in the near to medium term on this count.