Expectations build-up ahead of Reliance AGM; key announcements eyed

RIL’s earlier plans to sell a 20% stake to Aramco in the O2C business at an enterprise value of $75 billion, as announced during 2019 AGM, had not materialised due to multiple reasons. The fall in crude oil prices, uncertainties pertaining to refining and petrochemicals business outlook and debt on Reliance Industries’ books had been some of the reasons cited by analysts for the deal not materialising.

However, the scenario has improved significantly. Crude oil prices are at close to multi-year highs. The refining and petrochemical business outlook is improving. Refining margins have been gaining traction from lows seen during 2020. Expectations are that the refining margins will be much better moving forward. Reliance Industries is already a net debt-free company after it raised significant capital through monetisation of consumer businesses and rights issue.

All these bode well for the company, and with many of the concerns earlier cited now addressed, the possibility of some deal taking place in the O2C business have improved.

Hence, as the Street will be watchful on the same, it will also eye future plans and announcements for consumer-focused businesses.

“Over the last year, new investors have joined RIL’s digital and retail business at the subsidiary level and RIL has formed new partnerships with global players like Google, Facebook, Microsoft, Qualcom etc. Investors now expect Reliance to give direction to these businesses and announce ground breaking products,” said analysts at HSBC Securities and Capital Markets (India) Private Limit in their report dated 17 June.

Expectations remain high on growth in retail business too though it had taken a pause due to the spread of the pandemic. Analysts are expecting the segment to regain growth momentum now and become a significant earnings driver for the company.

“We believe retail business (including e-commerce) is set to be the next growth engine for Reliance, with potential for retail Ebitda to grow 10x over the next 10 years,” analysts at Goldman Sachs Equity Research in their report dated 20 June. They expect Reliance’s core retail revenue to grow at a 36% CAGR over the next four years to $44 billion, and e-commerce revenues to be 35% of total retail revenues in FY25 at $15 billion.

With smart gains seen in the company’s stock ahead of the AGM, the announcements will need to match Street’s expectations. “In the last 10 years, trading volume has surged around the AGM but RIL stock outperformed NIFTY post AGM only 6/10 times, said analysts at HSBC in their note.