Reliance Industries Ltd. may be undervalued even as the stock is likely to decline after the annual general meeting, according to analysts.
The AGM was lacking in terms of announcements on valuations for retail and Jio businesses, Abhijeet Bora, deputy vice president-research analyst, Sharekhan By BNP Paribas, told BQ Prime. "This may be the reason behind the fall in stock prices tomorrow," he said.
Mayuresh Joshi, head of research at William O'Neil, said that the stock may witness a negative tick tomorrow based on the market's "sentiment".
The down tick may be on the "lack of statement" related to its newly listed Jio Financial Services Ltd., even as the other announcements met the street's expectations, he said.
The investors were looking forward to hearing about the strategy, plan, and business model of Jio Financial Services. "But, in the longer-drawn process, if things work out in their favour, there is still a lot of value to the stock."
Bora advised investors to buy the stock "on any dip", as the company continues to grow its oil-to-chemicals business and for its long-term value creation in Jio Financial Services.
Valuation
With RIL's market cap of nearly 16.5 lakh crore, its retail business is valued at nearly 50% of the total market cap, leaving only the balance valuation for its core business as well as the financial services business.
With the oil business transitioning to chemicals, which have a relatively stable margin, the value-added products from the chemicals business will have a "huge beneficial impact" on companies, said Joshi.
He highlighted that the street also expects this transition to take place for Reliance Industries over the next few years. The ascribed value is likely to get rerated as the transition happens, he said.
Of the approximate stock price of Rs 2,400 for RIL, the oil-to-chemical portfolio is pegged at Rs 700 and about Rs 1,000 for the retail segment, said Bora. He also expects an uptick in the retail segment's valuation following a strategic investment.
Reliance Retail Ventures Ltd. has previously raised about Rs 47,265 crore from various global investment firms and sovereign wealth funds, including Silver Lake Partners, Mubadala Investment Co., Abu Dhabi Investment Authority, GIC Pvt., TPG Capital Management, KKR & Co., General Atlantic Service Co., and the Public Investment Fund of Saudi Arabia.
Shares of Reliance Industries closed 1% lower on Monday, as compared with a 0.21% gain in the benchmark Nifty 50.
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