RIL rights issue to list on June 12; what next for the conglomerate?

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Now that the most-awaited Reliance Industries' partly paid-up rights shares are ready to list on June 12, 2020, there are several questions on everyone's mind: what would be the listing price? What about the allotment? What should be the next strategy? Should we hold or sell?

First of all, partly paid-up rights issue shareholders should thoroughly track the underlying shares of Reliance Industries, which was trading at Rs 1,572 as on June 10. The next strategy should be discovering the price of partially paid-up rights issue.

Take into consideration the closing price of Rs 1,572. Now, we have to find out the listing price of partly paid-up share by subtracting, (CMP – remaining dues), which comes out to Rs 942.75.

Rs 314.25 has to be paid by May 2021 and remaining Rs 628.50 by November 2021.

Now, the present value of Rs 942.75, on a risk-free return of 6 percent, comes to around Rs 875 (round off). Hence, on current CMP of Rs 1,572, the listing price should be Rs 697 (1,572-875).

Those who get a direct advantage of the rights issue through holding generally are long-term investors. Therefore, they can opt to “retain” with a long-term view.

Those who bought Rights Entitlement (RE) from the secondary market or have a short-term outlook are expected to get a very handsome return on investment (ROI) on current market price considering an investment amount of around Rs 525-535 (Rs 314.25 paid up amount plus Rs 210-220 RE value). As a result, the investor can easily generate expected ROI of 30-35 percent in just a month. Hence, we recommend that “sell” on listing day would be a better option for short-term investors.

Reliance has already sold stake worth Rs 97,885.65 crore in Jio Platforms to global investors. This would help the digital platform to grow and deleverage the balance sheet.

In addition, the company is progressing well with Saudi Aramco to sell a 20 percent stake in oil-to-chemicals business, which would significantly add net cash and make it financially stronger.

In the retail business, the closure of stores and malls has lead to lower footfalls. However, we expect this will scale up rapidly led by JioMart and pharmacy platform. Hence, overall our outlook is positive for the company in the long run.

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