The brokerage firm has lowered its multiple on the O2C business to reflect mid-cycle margins. “We value the business at US$70bn (vs US$80bn earlier) at 7.5x fwd EV/EBITDA (vs 8.5x earlier),” they said. The target price has been lowered to Rs 2,880 per share from Rs 3,000 earlier. Jefferies said that the deal being called off was a disappointment while crude oil sits at $80 per barrel and after Aramco’s Chairman was inducted into RIL’s Board. “The deal could have set a valuation benchmark of US$75bn and acted as a catalyst for a re-rating of the O2C business,” they added. The shelving of the deal, however, will have no negative effect on RIL’s balance sheet.
Analysts at Kotak Securities said that there will be no impact on RIL from the deal not being completed. The brokerage firm has not ruled out short-term bearing on the stock given ensuing delay in anticipated reduction in O2C business exposure. “However, we do not see any impact in our SoTP valuation, while seeking comfort from a deleveraged balance sheet and expected FCF generation, which can adequately fund RIL’s new commerce and new energy forays,” they added. The brokerage firm added that the stock will benefit from near-term triggers such as a rebound in refining margins, strong growth in the retail business, and a tariff hike. Kotak Securities has pinned a fair value of Rs 2,800 on the scrip.
The deal being called off has been called a “negative surprise” by Credit Suisse. Analysts at the brokerage firm said that the market was factoring in 100% probability of the deal happening with all the developments around it. Credit Suisse said that the deal being called off will change valuation for the O2C segment. Further, they added that with the less-aggressive launch of JioPhone Next, the focus will now be on listing timelines of Jio and Retail and the possibility of a potential tariff hike in the telecom business. Credit Suisse has target price of Rs 2,450 per share on RIL.
via India Infoline
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