RIL’s stock has reached a new all-time high, pushing its market capitalization to ₹19.2 lakh crore. This surge comes as a result of a report by Bloomberg suggesting a significant drop in the valuation of Walt Disney’s India unit before its proposed merger with Mukesh Ambani’s media business. The report indicates that Disney’s India assets are now valued at around ₹4.5 billion, compared to their earlier demand for ₹10 billion, with the combined entity aiming for an ₹11 billion valuation, with Disney holding a 40 percent stake. Reliance Industries is set to own 51 percent, and the deal is expected to be finalized in February. Additionally, the collapse of the ₹10 billion merger between Sony and Zee Entertainment has removed a potential major competitor.
The rise in RIL’s stock, which has gained 8.6 percent in January, is attributed to positive commentary on its peak capital expenditure (capex) and strong retail performance. The company’s capex in the third quarter was ₹30,100 crore, marking a 22 percent decrease from the previous quarter, mainly due to reduced spending by Jio after completing the 5G rollout across India and lower capex in Retail due to limited space expansion.
RIL has experienced negative free cash flow over the past three years, primarily due to telecom spending. However, with these expenses decreasing and an annual EBITDA run rate of ₹20 billion, RIL is expected to generate positive free cash flow for the next two years. Although net debt increased slightly in the quarter ending December 31, analysts anticipate a downward trend in the future, supported by reduced capex and an improved EBITDA run rate.
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In light of the recent stock outperformance, CITI has downgraded its rating to Neutral, with a target price of ₹2,910. Key factors to watch include potential tariff hikes, updates on Jio and retail monetization, and deleveraging ahead of estimates.
