Sunday’s announ-cement is the second occasion time the Ambani siblings have publicly buried the hatchet. Incidentally, the public announcement of a settlement during their earlier spat had also come on a Sunday.
Key stocks of both the groups have been underperformers in the stock market. The new settlment may help investors in both the groups.
The key benefit for RIL is that the firm will be free to invest its surplus cash in areas such as power and infrastructure. RIL has usually gotten a premium valuation compared to the public sector oil firms because of the higher growth rate.
However, that seems to have changed over the past few quarters — something that hasn’t gone unseen in the market. Merrill Lynch and RBS are amongst the bears on RIL.
The two brokers have a price target of Rs 972 and Rs 855 respecitvely. In its last note, RBS said that lower capex would improve the balance sheet, but it would also hurt valuations as it implies lower organic growth rate.
Even other analysts who are more positive on the stock rarely have price targets exceeding Rs 1,200.
Being able to invest in a greenfield coal based power may be a big plus for Reliance, says an analyst with a domestic brokerage house. This is because project execution and efficient operations — as seen in refining — are believed to be the company’s strength.
For ADAG, the gains are less obvious. Unless the price of gas and its details are known, any impact on RNRL, Reliance Power and Reliance Infrastructure is purely sentimental.