RIL stock hits fresh record high; MCap hits Rs 19.2 lakh crore

The RIL stock gained after Bloomberg reported that Walt Disney’s India unit faces a significant erosion in valuation, possibly half, in the run-up to its proposed merger with Mukesh Ambani’s media business

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Shares of Reliance Industries Ltd surged 5 percent to a record, gaining for the third straight session and propelling the company’s market capitalisation to Rs 19.2 lakh crore.

The stock hit an all-time high of Rs 2,850 at 12.50pm on January 29.

The RIL stock gained after Bloomberg reported that Walt Disney’s India unit faces a significant erosion in valuation, possibly half, in the run-up to its proposed merger with Mukesh Ambani’s media business. After negotiations, Disney’s India assets are now valued at around $4.5 billion, compared to its earlier demand for $10 billion, the report said. The combined entity aims for an $11 billion valuation, with Disney holding a 40 percent stake.

Reliance Industries will own 51 percent, and the deal is set to be finalised in February, Bloomberg reported. The collapse of the $10 billion merger between Sony and Zee Entertainment removes a potential major competitor, the report added.

The RIL stock has gained 8.6 percent in January following positive commentary on peaking capex and strong retail performance. Analysts have raised target prices and maintained their ratings.

In the third quarter, the company’s capital expenditure (capex) was Rs 30,100 crore, a 22 percent decrease from the previous quarter. This drop was due to reduced spending by Jio after completing the 5G rollout across India and lower capex in Retail because of limited space expansion.

“We expect retail capex to decline Rs 15,000 crore on-year in FY24 and fall further in FY25. Also, Jio’s headline capex should fall Rs 30,000 crore in FY25, helping improve FCF (free cash flow) abating concerns on rise in net debt,” Jefferies India said.

According to analysts, there was a slowdown in capex in the December quarter as the completion of the 5G rollout approached. RIL has experienced negative free cash flow over the past three years, primarily due to telecom spending. With the fading of these expenses and an EBITDA run rate of $20 billion annually, RIL is anticipated to generate positive free cash flow for the next two years. Although net debt slightly increased in the three months ended December 31, quarter-on-quarter, due to the repayment of other capex liabilities, analysts predict a downward trend in the future, supported by reduced capex and an improved EBITDA run rate.

“We raise our FY24-26 EBITDA by 2-5 percent led by Jio (higher tariff hikes), retail (recent robust performance), and O2C (3Q beat). The stock’s recent outperformance, however, makes risk/reward more balanced, in our view, and we d/g to Neutral with Rs2,910 TP (+12 percent; roll-fwd). Key triggers – a surprise in the magnitude of tariff hikes, Jio/retail monetisation updates, deleveraging ahead of estimates,” said CITI in its latest note.

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