Reliance Industries' partly paid share price more than doubles on debut

Reliance Industries’ partly paid (RIL PP) shares (with a face value of Rs 2.5 each) — issued as part of the Rs 53,124-crore rights issue — made a stellar debut on Monday with the scrip ending at Rs 698, more than double the issuance price of Rs 314.25. RIL fully paid (RIL FP) shares (with a face value of Rs 10 each) ended at a lifetime high of Rs 1,615, surpassing the previous high of Rs 1,610 made on December 19 last year. At the last closing price, the intrinsic value of RIL PP works out to Rs 403.75, a fourth of RIL FP.

The strong debut of RIL PP follows a huge response to the Mukesh Ambani-led firm’s rights issue, which saw more demand than the shares on offer.

RIL PP touched a high of Rs 710.65 and a low of Rs 664.4 on the National Stock Exchange (NSE), where Rs 600 crore worth of shares changed hands.

The combined market cap of RIL, including that of partly paid shares, now stands at Rs 10.53 trillion, making it by-far India’s most-valued firm. Currently, the second-most valued firm is Tata Consultancy Services (TCS), which has a market cap of Rs 7.61 trillion.
In less than two weeks, both RIL promoters, as well as public shareholders are staring at huge mark-to-market gains. The promoters subscribed to nearly 225 million shares for Rs 7,000 crore, which is currently valued at Rs 15,705 crore.

Investors who subscribed the rights issue by acquiring the so-called rights entitlement (RE) also stand to make quick gains of more than 30 per cent within weeks. After factoring in the average RE cost of about Rs 223 per share, the cost of acquisition of one partly paid shares works out to around Rs 530 per share.


So why are investors paying such a premium to buy partly paid shares? The answer lies in the structuring of the rights issue, coupled with the outlook for RIL, which will soon become a debt-free company.

The partly-paid shares of RIL will get converted into fully-paid shares in nearly 18 months in November 2021. RIL PP holders will have to pay a second instalment of Rs 314.25 in May 2021 and balance Rs 628.5 in November 2021. As a result, the cost of acquisition of one RIL FP works out to Rs 1,641, 1.6 per cent higher than the last closing price of Rs 1,615.

Many believe this is a fair deal as they locking-in the price at the current levels and have to make staggered payments.

A note by Axis Securities says that the RIL PP value could climb to Rs 800 by May 2021 when investors have to pay the second instalment.

“Considering the strong franchise of RIL, the rights issue can be bought up to Rs 680 with a target price of Rs 760-800 before the next tranche of payment (May 2021),” it said in a note.
Analysts say RIL PP’s fair value is tied to the expectations of where RIL PP will trade by May 2021 and November 2021.

“If investors are of the view that by May or November 2021, RIL’s stock price will be higher than the current levels, one can expect the RIL PP shares to gain even more from the current levels. If someone isn’t bullish on the prospects of the company, they can sell,” says an analyst. Axis Securities says RIL PP is like a call option to buy RIL shares at Rs 1,257. Call option holders, in this case, the RIL rights issue subscribers, will make money as long as shares stay above Rs 1,257 each.

Those buying RIL PP from the secondary market will gain if the stock price is higher than the current levels over the next 11 to 18 months.

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