Reliance Industries shares top Rs 2,300 level, surge 4% as creditors to consider biz demerger on May 2

Shares of Reliance Industries climbed nearly 4 per cent and topped the Rs 2,300 mark for the first time since March 14 after the oil-to-telecom major said its secured creditors, unsecured creditors and equity shareholders will meet on May 2, to consider demerger, transfer and vesting of the Financial Services Business from the company into the resulting company on a going concern basis.

Following the development, the scrip rose 3.52 per cent to hit a high of Rs 2,314.05 on BSE. This was the first session since March 14 when the scrip hit the Rs 2,300 level. The gains, if sustained till the closing, would be highest for the scrip in percentage terms since May 20, 2022's 5.76 per cent.

With Friday's gains, Reliance Industries has cut its year-to-date fall to 10 per cent in 2023 so far. It still underperformed the BSE Sensex by 610 basis points during the period. For one- and two-year periods as well, the scrip failed to beat index returns, thanks to prevailing concerns over high capex and resultant rising debt. Investors have been unwilling ascribe any value to new businesses and factoring in higher capex in the near term. While short-term concerns stays, a few brokerages are positive on the stock with price targets as high as Rs 3,100.

Reliance Industries said the demerger would imply creation of an independent company focusing exclusively on financial services, Reliance Industries said while noting that the financial services business would require differentiated strategy aligned to its industry specific risks, market dynamics and growth trajectory.

"The nature and competition involved in the financial services business is distinct from the other businesses and it is capable of attracting a different set of investors, strategic partners, lenders and other stakeholders," it said.

The Mukesh Ambani-led Reliance Industries had last year announced the demerger of its financial services business into a separate entity and subsequent listing it on the stock exchanges. The demerged dompany will carry on the business directly directly and through its subsidiaries and joint ventures.

On Friday, the creditors and shareholders will consider issuing of one fully paid-up equity share of the resulting company having face value of Rs 10 each for every 1 (one) fully paid-up equity share of Rs 10 each of the company, in consideration 1961, listing of equity shares of the resulting company on BSE and NSE.

JM Financial and Kotak Institutional Equities have a price target of Rs 2,900 on the stock; JP Morgan finds it worth Rs 2,960, Nomura India sees it at Rs 2,850 while Jefferies has a target of Rs 3,100 for the stock.

JM Financial said the RIL scrip is trading close to its bear-case valuation of Rs 2,000 per share, which was based on pessimistic earnings and valuation multiples across businesses and nil attribution to Digital assets and JioMart’s new commerce business. It was also based on valuations at which Reliance Industries sold stake in JPL and the retail business in 2020, JM Financial said.

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