Reliance Industries share price surges over 11% on deal with Saudi Aramco, debt reduction plan

Reliance Industries share price surged in early trade today after Chairman Mukesh Ambani announced Saudi Aramco would buy 20% stake in Reliance Industries' oil-to-chemicals business at an enterprise value of $75 billion (around Rs 5.32 lakh crore). Additionally, Ambani announcing plan to become "a zero net debt company" by March 2021 at the Annual General Meeting yesterday led to positive sentiments around the stock. Reliance Industries shareholders gained Rs 84,151 crore in the first hour of trade today after market capitalisation of the firm rose to Rs 8,20,753 crore compared to Rs 7,36,602 crore in Friday trade.

Watch: Highlights of RIL chairman Mukesh Ambani's speech at Reliance AGM

Reliance Industries share price rose 11.41% to Rs 1,295 compared to previous close of Rs 1,162 on BSE. The large cap stock has been gaining for the last three days and has risen 14% in the period. On NSE,Reliance Industries share price rose 11.47% or 133 points to Rs 1,295.40 compared to the previous close of Rs 1162 level. 

Reliance Industries share price opened with a gain of 6.71% at Rs 1240 on BSE. Reliance Industries share price has gained 6.26% during the last one year and risen 12.53% since the beginning of this year. In comparison, the benchmark Sensex rose 3.62% since the beginning of this year and lost 0.72% during the last one year.

The share hit a fresh 52-week high of 1417 level on May 3, 2019. It hit a 52-week low of 1017 on October 25, 2018. Saudi Aramco's  stake purchase is among the largest foreign investments in India.

Also read: How does Mukesh Ambani plan to cut RIL debt to zero in 18 months?

The Gulf behemoth, the world's biggest oil producer, has been looking to boost investment in refining and petrochemicals to secure new markets for its crude and sees growth in chemicals as central to its downstream strategy to reduce risk as oil demand slows.

As part of the deal, Saudi Aramco will supply 500,000 barrels per day or 25 million tonnes per annum, of crude oil to RIL's twin refineries at Jamnagar in Gujarat. This is the world's biggest refining complex.

While addressing shareholders at the annual general meeting (AGM) on Monday, Ambani said that they have "a very clear roadmap" to become "a zero net debt company" by March 2021.

At the end of the last fiscal, RIL's gross debt stood at Rs 2.88 trillion, or $41.6 billion.

Brokerage Motilal Oswal in a report said, "We had downgraded the stock to Neutral in April 19 citing (a) upcoming weakness in the refining and petrochem margins and (b) the build-up in the telecom and retail segments was already factored in our valuations. Moreover, we were concerned about the rising debt amidst high capex intensity. Since then, the stock has declined 20%.

The AGM went a long way in allaying those concerns. Although the announced Saudi Aramco-RIL deal is non-binding, it does highlight management's intention to lower debt. Our estimates suggest consolidtaed  interest cost of  Rs 268 billion in FY21, 24% of EBITDA. A decrease in net debt of Rs 100 billion would result in an earnings per share increase of 1.2% in FY21. The core segment is expected to remain under pressure.

However, the decline of 20% in the stock price since our last report, combined with the possibility of a decrease in net debt, makes us upgrade RIL to Buy. We reiterate our target price of Rs 1,400, which includes valuation of core segments at 7.5 times FY21 EV/EBITDA, Jio at Rs 230/share and Retail at Rs 414/share."

Also read: Reliance partners with Saudi Aramco in biggest FDI deal

Edited by Aseem Thapliyal