InvestorQ : Why have global brokerages raised their target price for Reliance Industries? Is the stock worth buying at this price?
shrinidhi Rajan made post

Why have global brokerages raised their target price for Reliance Industries? Is the stock worth buying at this price?

Answer
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Riya Dwivedi answered.
11 months ago


Brokerages have become bullish about Reliance Industries after it reported its recent restructuring move. The major highlights of the restructuring are as under:

· The debt of the Reliance Jio company will now be transferred to a subsidiary of RIL to the tune of Rs.108,000 crore. In addition, RIL has already contribute to the capital of Jio to the extent of Rs.65,000 crore. Thus the subsidiary will now be capitalized to the extent of Rs.173,000 crore.

· As its contribution to the capital, the parent company RIL will issue optionally convertible preference shares to the newly formed subsidiary. These preference shares will be convertible at a future date into shares of the company.

· This will leave the Reliance Jio company with no net debt and the debt in its books will be the Rs.35,000 crore approximately of license fees payable to the government. There will be no other debt in their books.

· This move is likely to help attract global investors with deep pockets into Reliance Jio as it will be simpler to sell equity in a company that is free of debt. For RIL shareholders it will be value creation to the principal shareholders too.

· Reliance has also transferred the major infrastructure assets of Jio into an INVIT (Infrastructure investment trust) and that will make Jio asset light and also debt light making the stock a lot more attractive to the investors.

The restructuring is long term value accretive for the Jio group and hence you can look at the stock as an attractive bet at this point of time. However, considering that the stock has already appreciated by nearly 25% in a short span of time, you can look to buy the stock on dips rather than jumping in at current levels and buying the stock.