RIL stock may rally if O2C segment picks up: Naveen Kulkarni

2020 was all about Reliance and those big deals that we saw for Jio and retail. What will be the next picture for ? That’s what the markets would want to know.
If you look at Reliance Industries, the stock did pretty well till October or so. November onwards, the stock started cooling off and from highs closer to Rs 2,300, the stock has been hovering between Rs 1,800-2,200. The stock has corrected and there has been some bit of derating also that has happened.

But having said that, the critical aspect is how the overall industry cycle is going to pan out. If the O2C segment starts doing better, then I think there is a play because the stock has been an underperformer for the last four to five months. The important aspect that we need to see is how sustainable these trends are going to be. The current quarter numbers look quite encouraging. If the trend continues to be an upcycle, there is much scope for the stock to do well just based on the operating performance.

As far as other triggers are concerned, the Aramco deal is pretty much one aspect that we could be looking at. Apart from that, if the retail business or digital services business gets listed on foreign bourses, those could be the trigger. It could be the long-term trigger but from an operating performance perspective, the O2C segment is going to be very critical. We already know how the Jio platform business is panning out. The long-term growth trajectory is understood and valuations are in place. Other businesses are where they see more value to be created, especially the O2C segment.

Would it make sense for Reliance shareholders to hold a stake in Aramco and give up stake in O2C? Will the deal be as attractive as a plain cash for stake deal?
It is difficult to make a case for that at this point in time. It remains to be seen how a pure share swap deal will enthuse the investors. Cash has also its own advantages as well as disadvantages. But we will have to wait and watch out what exactly is on offer. Also, an important factor will be what it could mean in terms of controlling stake and how the company is going to be run. Those will be the critical aspects that one will have to watch out for. It is difficult to gauge the benefits at this point in time. But it might be a very interesting thing to look at. We have not had something like this in India as far as I can remember. So that will be something that we all will be looking forward to.

Would we see Reliance Industries’ three main businesses being hived off into three different divisions? Is that something all of you in the markets and the analysts community are still following up?
More important aspect will be how the holding structure will pan out once the business is structured. There are a lot of moving parts here. One is to look at that sum of the parts and say that the value of the sum of the parts is probably higher than what the market is ascribing to in terms of numbers. But the important aspect would be how the structuring will actually happen and more importantly, how the businesses will be run after that.

It is like two to three steps ahead of what we are able to analyse at this point in time in terms of the sum of parts valuation. So it remains to be seen. If you look at typically how Reliance is valued at the sum of the parts, valuation will definitely offer a much higher value than what it is right now. But the challenge has been that it is difficult to envisage how the structure of the company will evolve post that and that is why the market is ascribing the value to what the sum of the parts valuation entails. So we will have to wait and watch out how that happens, but as far as the analyst community is concerned, the sum of the parts valuation for these three businesses are very much considered and that is the way that company is being valued now.