RIL O2C warming up IPO? Business spin off paves way for stake sale, RIL share price may jump 25%

Mukesh Ambani’s plan to reorganise RIL’s oil-to-chemical business could pave the way for the business unit’s IPO, along with a possible 20% stake sale to Saudi Aramco, as the market improves, said global brokerage and research firm Bernstein in a recent report. RIL has already filed for approval for the reorganisation plan with the NCLT. A decision is expected by the end of September this year. “The demerger will help facilitate self-funding growth and alignment with potential strategic investors into the O2C business. We believe the separation is also a move towards a potential IPO which will further unlock value for RIL shareholders,” the report said.

Saudi Aramco stake sale 

RIL has been in talks with Saudi Aramco for some time now and even though the O2C business has taken a hit amid the pandemic, Bernstein said that the chemical market is attractive enough to warrant Aramco to take a stake. Reliance and Saudi Aramco signed a deal in 2019 which would have seen Aramco buy a 20% stake in the business for $15 billion at a gross value of $75 billion.

“We remain optimistic that a deal will come together with Aramco albeit at a lower valuation which we estimate at US$67bn gross,” Bernstein said. They added that the deal would give Aramco direct access to the fastest-growing refined oil product market over the next 20 years while for Reliance, the deal provides funding for expansion while providing an opportunity to expand downstream capacity with an experienced partner. 

IPO in the offing?

The brokerage firm further added that an IPO could be in the offing as and when market conditions for the business improve. It also discusses the possibility of an IPO of Jio Platforms as well as the retail arm of RIL. While Jio Platforms is owned 67% by Reliance, other key investors such as Facebook and Google, along with PE firms make up the remaining share. On the other hand Reliance Retail has PE firms owning 10% of the firm.

25% upside

Bernstein remains bullish on the RIL stock with an ‘Outperform’ rating. The brokerage has a target price of Rs 2,470 per share on RIL which currently trades at 1,970 apiece, translating to 25% upside from current levels. “Our price target of Rs 2,470 per share gives meaningful upside to what we believe will be a long-term quality compounder in India,” the report said.