Reliance-Aramco Deal Cancelled: Last week, Reliance Industries and Saudi Aramco canceled their deal and decided to re-evaluate it. Aramco was to buy a 20 percent stake in Reliance’s Oil to Chemical (O2C) business, but both decided to cancel the deal in the changing environment. Due to this, RIL shares fell more than 4 per cent on Monday and reached an intra-day low of Rs 2,356 per share. Analysts have mixed views on how the cancellation of the deal will affect the performance of RIL’s shares. Analysts of foreign brokerage firm Jefferies have reduced the target price, while analysts of Kotak Securities, Credit Suisse and Prabhudas Lilladher have not changed the target price.
Jefferies – Buy
The brokerage firm has lowered its multiple on O2C business for mid-cycle margin. “We value the business at 7.5x fwd EV/EBITDA (vs 8.5x earlier) at US$70bn (earlier US$80bn),” the firm said. The target price has been reduced to Rs 2,880 per share from Rs 3,000 earlier. Jefferies said the cancellation of the deal was disappointing. “The deal could have set a valuation benchmark of US$75 billion,” he said. However, putting the deal on hold will not have any negative impact on RIL’s balance sheet.
Reliance-Aramco Deal: Reliance and Saudi Aramco’s deal canceled, Aramco had to buy 20 percent stake in the company’s O2C business
Box Securities – Add
Analysts at Kotak Securities said that the non-completion of the deal will not affect RIL. The brokerage firm said the stock will benefit from near-term triggers like rebound in refining margins, strong growth in retail business and tariff hike. Kotak Securities has imposed a fair value of Rs 2,800 on the stock. The brokerage firm has not ruled out short-term impact on the stock in view of the upcoming delay in anticipated reduction in O2C business exposure.
Credit Suisse – Neutral
Credit Suisse has called the decision to cancel the deal a “negative surprise”. Credit Suisse said that the cancellation of the deal will change the valuation for the O2C segment. Further, he added that with the less-aggressive launch of JioPhone Next, the focus will now be on the listing timeline of Jio and retail and the possibility of tariff hikes in the telecom business. Credit Suisse’s target price on RIL is Rs 2,450 per share.
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Prabhudas Lilladher – Buy
Analysts at the brokerage firm have called the deal a ‘dampener’ while not ruling out any further partnerships in the future. “This is negative as it gives RIL access to the latest petrochemicals technology along with supply of crude oil,” he said. Analysts have given it a ‘BUY’ rating and a target price of Rs 2,955 per share.
(Article: Kshitij Bhargava)
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