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Reliance shares at nine-year high after Ambani revamps holding

LiveMint logoLiveMint 03-03-2017 Ravindra N. Sonavane

New Delhi: Shares of Reliance Industries Ltd on Friday were trading at a fresh nine-year high after the company proposed to re-structure its shareholding by inter-se transfer of shares.

Eight promoter group companies of RIL will buy around 119 crore shares from 15 other promoter group companies in an inter-se transfer. The shares are valued at around Rs1.50 trillion as of Friday’s current price. The selling firms will each retain at least 100 shares of RIL, according to Bloomberg.

Eight group entities of the founders will acquire the shares. These entities include Devarshi Commercials LLP, Karuna Commercials LLP, Tattvam Enterprises LLP, Srichakra Commercials LLP, Svar Enterprises LLP, Vasuprada Enterprises LLP, Shreeji Comtrade LLP and Shrikrishna Tradecome LLP.

The acquisition price would not be higher by more than 25% of Rs1,100.78 (based on trades on the NSE), a notice to the BSE said.

In intraday trade, the scrip rose as much as 4.42% to touch a high of Rs1,287.80, a level last seen on 23 May 2008. The stock gained over 17% after 21 February when it announced that its telecommunication arm will start charging its customers from 1 April.

Since then, various brokerage firms have upgraded the stock on the hopes that its arm Reliance Jio may start generating revenue after the company spent over $24 billion on its telecom business.

Moreover, Jio has promised that it will offer 20% more data on any tariff plan announced by other operators even as it was reiterated that voice calls and roaming will remain free on Jio’s network. Jio also announced a Prime Plan at a Rs99 enrolment fee.

While the stock has gained substantially, the extent of near-term upside remains on positive or negative surprises Jio can spring up.

According to data from Bloomberg, 29 brokerages either have a buy or overweight rating, while 10 of them have a hold or neutral. There are no sell ratings on RIL at this point of time.

If one looks at the analysts’ recommendations in May 2008, the consensus continues to be bullish, but the sense of caution is more than before with more analysts putting the stock on hold.

In May 2008, 21 analysts rated the stock at buy or overweight, while three had a hold or a neutral rating and one rated it a sell, according to Bloomberg data.

“We remain cautious on Reliance as we believe high underlying liability on balance sheet leaves little room for equity upside even assuming full upside from downstream projects and reasonable value for Jio,” Jefferies analysts said in a note last week. They have a hold rating on the stock.

There are concerns that the existing user base may fall, once the free offer ceases to continue.

“We expected a gradual transition from ‘free’ to paid plans, and find this tariff step-jump surprising; Jio’s user base may see a large fall in April 2017,” Credit Suisse said in a note last week, while maintaining a neutral rating on the stock.

“At current plans, visibility of a fast user-base ramp-up beyond April is low, given incumbents nearly match Jio’s September 2016 plans. More discounted tariff announcements are likely near term,” added Credit Suisse.

Meanwhile, analysts are looking forward to the core projects which will get commissioned in the next financial year.

In a note last week, Goldman Sachs analysts said they see a 11% upside potential to its fiscal year 2018 12-month target price of Rs1,210. They maintained a buy rating, citing support from new projects driving FY16-19 earnings CAGR (compounded annual growth rate) of 11%, improving free cash flow as capex intensity declines, and positive risk-reward around Jio.

At 11.24am, RIL was trading at Rs1,267.10 on the BSE, up 2.74% from its previous close, while India’s benchmark Sensex Index fell 0.25% to 28,766.88 points.

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