Aramco deal on backburner a minor setback; buy RIL on dips: Analysts

RIL shareholders had recently passed a resolution in October to appoint Saudi Aramco Chairman Yasir Al-Rumayyan as an independent director to the conglomerate's board

The deal between Reliance Industries (RIL) and global oil giant Saudi Aramco for a 20 per cent stake acquisition by the Saudi firm in the oil to chemicals (O2C) business of the former being put on the backburner is a minor setback for the Mukesh Ambani-controlled firm, said analysts. A correction in the stock in the backdrop of this development, they feel, is a good opportunity to buy from a long-term perspective.
 
“The deal with Saudi Aramco being put on the backburner will be sentimentally negative for the stock as it had already pencilled in the development to quite an extent. The O2C deal with Saudi Aramco could have provided a much needed long-term contract with the global oil major for its produce. That said, the stock has already corrected from its recent high and another 8 - 10 per cent from the current levels will be a good opportunity to buy for the long term,” said A K Prabhakar, head of research at IDBI Capital.
 
Back in 2019, RIL and Saudi Aramco signed a non-binding letter of intent for a potential 20 per cent stake acquisition by the latter in RIL's O2C business that included refining, petrochemicals, fuel retail, aviation fuel and bulk wholesale marketing businesses. That apart, RIL shareholders passed a resolution in October to appoint Saudi Aramco Chairman Yasir Al-Rumayyan as an independent director to the conglomerate's board.


 
“With the Chairman of Aramco inducted on the board of directors of RIL, the transaction to sell a minority stake in the O2C business is proceeding towards completion in CY21. The transaction could aid further debt reduction, preferential pricing on feedstock sourcing and be accretive to profitability of the O2C business,” wrote analysts at Jefferies in a recent note on the company.

For the September 2021 quarter of the current fiscal (FY22), RIL had reported a consolidated net profit of Rs 13,680 crore, up 43 per cent YoY. The net revenues on a consolidated basis during the period under review came in at Rs 1.67 trillion, up 51 per cent year-on-year (YoY), led by strong contribution from the O2C and retail businesses. RIL’s O2C business segment had contributed the most - over Rs 1.20 trillion - to the consolidated revenues in Q2-FY22, data show.
 
Meanwhile at the bourses, RIL stock has underperformed the S&P BSE Oil & Gas index thus far in calendar year 2021 (CY21) that has moved up around 31 per cent as compared to RIL’s 25 per cent gain. The S&P BSE Sensex, however, has moved up an equal measure when compared to RIL.
 
“The Saudi Aramco – RIL deal being put on a backburner will definitely be a sentiment negative but may not a deep-rooted impact, as RIL had deleveraged its balance-sheet to quite an extent over the last few months. The markets will eventually realise this. The company also plans to list its retail (Reliance Retail) and telecom (Reliance Jio) business verticals, which will be a good long-term positive for the stock,” said G Chokkalingam, founder and chief investment officer at Equinomics Research.