RIL Hits Record High On New Holding Structure For Jio Digital Businesses
A vendor uses a smartphone while standing next to advertising for Reliance Jio Infocomm Ltd. at the Nehru Place IT Market in New Delhi, India. (Photographer: Sanjit Das/Bloomberg)

RIL Hits Record High On New Holding Structure For Jio Digital Businesses

Shares of Reliance Industries Ltd. touched an all-time high as analysts cheered the company’s move to restructure and streamline its telecom and digital business, paving the way for its potential stake sale.

India’s most valued company approved the creation of a new digital platform holding company as well as a debt restructuring. This will make Reliance Jio Infocomm Ltd. a virtually net debt free company by March 31, 2020, according to a company statement.

The restructuring will effectively insert a new company between RIL and Reliance Jio and will result in the transfer of debt from the telecom subsidiary to the parent.

Owner Mukesh Ambani at the company’s annual general meeting in August had announced his plan to induct investors in the telecom business and to make RIL net debt free over the next 18 months.

Shares of RIL rose as much as 2.2 percent intra-day to hit an all-time high of Rs 1,465.80 apiece. That compares with a 0.60 percent gain in the Nifty 50 Index.

Here’s what the brokerages have to say…

CLSA

  • Maintains ‘Buy’ with a target price of Rs 1,710 apiece.
  • Repositioning Reliance Jio as a digital major ahead of a potential stake sale.
  • Indicative optionally convertible preference shares conversion price suggests a value of $65-70 billion—much higher than CLSA’s value of $45 billion.
  • Cleaner structure maybe a precursor to stake monetisation in the digital business.

Morgan Stanley

  • Maintains ‘Overweight’ with a target price of Rs 1,469 apiece.
  • Restructuring of telecom/digital business raises the focus on asset monetisation and debt reduction.
  • Consolidated debt remains unchanged; platform apps move onto investor radar.
  • Clarity on the corporate structure improves and interest capitalisation concerns lessen.
  • If RIL were to own less than 100 percent in its key business, there is a potential for holding company discount to emerge.

HSBC

  • Maintains ‘Buy’ with a target price of Rs 1,565 apiece.
  • New subsidiary positioned as a digital services platform.
  • No impact on consolidated financials.
  • Such structure could help in early monetisation and unlock value of its digital services.

Citi

  • Maintains ‘Buy’ and hikes target price to Rs 1,645 from Rs 1,500.
  • Streamlines structure; consolidates digital platforms under one entity.
  • Has no implications for shareholders given no effective change in ownership of its digital businesses.
  • Paves way for monetization.

BofAML

  • Maintains ‘Buy’ with a target price of Rs 1,615 apiece.
  • Re-organisation to help Reliance Jio/digital platform to be debt free.
  • Valuing the telecom business at $60-70 billon versus BofAML’s valuation of $64 billion.
  • Progress on promises deleveraging and on new commerce/broadband business to drive upside.

JPMorgan

  • Maintains ‘Neutral’ with a target price of Rs 1,400 apiece.
  • Debt light balance sheet of Reliance Jio/digital makes it more attractive for stake sale.
  • Key positive would be if strategic partner takes meaningful stake (20 percent plus) at these valuations.
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