RIL’s partly paid shares surge 76% since listing, now just shy of Reliance rights issue price

The value of the partly paid shares has surged to Rs 1,220 per share, up 76% since listing.

Mukesh Ambani’s Reliance Industries Ltd (RIL) has had a dream run on stock exchanges since the beginning of this financial year. RIL stock has rallied 90% since April 1 and market experts believe there is still some steam left in oil-to-telecom major. However, the partly paid shares of Reliance Industries, which were listed post the Rs 53,000 crore rights issue, have performed even better since listing. Reliance partly paid shares started trading on June 15 at Rs 690 per share, a premium of 75% to the intrinsic value of Rs 395 apiece. Now the stock has added another 76% to those gains.

Reliance Industries fully paid shares have jumped 30% since June 15, which is when the partly paid shares were listed. Since then, the value of the partly paid shares has surged to Rs 1,220 per share, up 76% since listing. This is slightly below the rights issue price of Rs 1,257 per share. “Since the upfront payment is less for partly paid shares, many investors prefer to buy PP vs the Fully Paid one, with the objective of creating alpha on their investment,”Hemang Jani – Head Equity Strategy, Motilal Oswal told Financial Express Online. 

The partly paid shares are tradable like any other security, said Hemang Jani. “Investors who buy PP shares will have to pay the balance amount as per the payment schedule and it will eventually get merged into fully paid shares post the payment of all the money,” he added. Mukesh Ambani put in place a staggered payment plan for the rights issue where investors did not pay the full amount in one-go. Investors who participated in the Reliance Industries’ rights issue to acquire the partly paid shares have only paid Rs 314 per share so far. 

Reliance Industries reported a 31% jump in net profit for the April-June quarter on Thursday. Net profit came in higher despite a sharp drop in revenues as RILs deal with BP worth Rs 4,966 crore boosted income. RIL’s revenue from the traditional cash-cows petrochemicals and refining were lower but was saved by the retail business that recorded massive sales despite 50% stores being fully shut in the wake of the coronavirus pandemic.

The oil-to-telecom conglomerate has recently fallen out of favour among a few brokerage and research firm, who believe it might be time to pause after the 400% seven-year rally that RIL has enjoyed. However, none of the brokerages believe that RILs business will be hit in the near future. “Despite a lenient valuation framework, our new target of Rs 2,250 (Rs1,753.38 earlier) offers only 4% upside, which sees us downgrade our rating from BUY to O-PF,” said CLSA in a recent note. Edelweiss Securities said that RIL’s FAANG-like valuation is misplaced as the company’s O2C and telecom make up 70% of value.

However, not all are raising the flag. “We continue to have a positive view on both Partly Paid and Fully Paid shares as the firm has entered into a new league of its own with marquee investors coming in and both telecom and retail story showing massive potential over next 1-2 years,” Hemang Jani said. He added that in a bull phase its possible that Partly Paid shares will do better than the fully paid shares.