Reliance Industries gains 2% on plans to hive off O2C business

Shares of billionaire Mukesh Ambani's Reliance Industries (RIL) rose 2 per cent to hit an intra-day high of Rs 2,048.70 on the BSE after the company said it has begun the process of carving out the O2C business into an independent subsidiary and expects to get the necessary approvals for the same by the second quarter of the next financial year.

The company said the O2C business will be turned into a separate entity that will be 100 per cent owned by RIL and will result in no change in the company's shareholding.

It further added that it will focus on new energy and new materials business “towards its vision of clean and green energy development.” RIL plans to go net carbon zero by 2035.

At 9.50 am, the shares pared some gains and were trading 0.74 per cent higher at Rs 2,022.30 as against a 0.04 per cent rise in the BSE barometer Sensex. On a year-to-date basis, the shares of RIL are up just 1 per cent.

But analysts believe that this restructuring will trigger the next leg of up move in the stock and pave way for the Saudi Aramco deal that the oil-to-telecom behemoth had announced in August 2019. According to media reports, the talks have restarted on that front.

“Key benefit from the deal is that reorganization of O2C would ease out its stake sale into the unit to strategic investors like Saudi Aramco and others. In line with Reliance Retail Ventures and Jio Platform stake sale, we expect it to pare 20-25 per cent stake to strategic investors, which would unlock huge value to its shareholders,” said a note by IDBI Capital. READ MORE

Meanwhile, analysts at Morgan Stanley said that they see valuations/asset prices rebounding back to levels seen in August 2019 with a much-improved industry outlook.

That said, analysts at Kotak Institutional Equities note that while the reorganization seems to be intended to raise capital among other strategic priorities, the brokerage is not sure of the rational for another large fundraise, "as the group has adequately deleveraged its balance sheet".