Reliance Industries' Rs 53,125 crore mega rights issue opened for subscription by shareholders on Wednesday, it became the first issue where eligible shareholders got the rights entitlements (REs) in demat, which could be traded on stock exchanges.
RE's intrinsic value is the difference between RIL share price and the Rights Issue price of Rs 1,257. At RIL's VWAP of Rs 1,442.3, the RE''s intrinsic value stood at Rs 185.3 on Friday (Difference between Rs 1,442.3 and Rights Issue price of Rs 1,257).
Over Rs 1,000 crore of RIL-REs traded on stock exchanges in the first three days of listing, notwithstanding the fact that it is listed in Trade-to-Trade segment and buyers must take delivery of the REs.
No intra-day trade allowed. Over 5 crore RIL-REs were traded on stock exchanges in the first three days of listing.
Current market value of all RIL-REs exceed Rs 9,200 crore. In the rights issue, the company will offer one share for every 15 shares held at Rs 1,257 per share. This will be the first issue where the rights entitlements will be credited to eligible shareholders'' demat accounts and will be freely tradable.
5 reasons why you should apply for RIL rights issue
- At present, Reliance Industries (RIL) is market leader in digital and retail business in India. As per CNBC-TV18 data, RIL-RE is trading at a premium of more than 25 percent at 10:00 IST. Experts say these two segments will be the key growth drivers for the company over the next few years.
"We believe that the telecom and retail business will be key growth drivers for the company over the next few years while the company’s foray into e-commerce through its JioMart platform will be a value creator for the shareholders in the long run," said Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd.
- RIL's Jio Platforms has raised Rs 78,562 crore from leading technology investors including Facebook, Silver Lake, Vista Equity Partners, General Atlantic and KKR in quick succession. This will help the RIL pay down its debt. In fact, it will also inspire confidence in the company's strategy to transform from a brick and mortar company into a digital play. According to Angel Broking, the SOTP based target price of RIL is Rs 1,748, which implies an upward potential of 22% in the share price of RIL.
- RIL's consumer and telecom business now accounts for around 78% of the conglomerate's valuation, according to Motilal Oswal. The brokerage values RIL's retail business at Rs 500 a share, digital business at Rs 760 per share while the core business is valued at just Rs 358 per share.
- In RIL's digital services i.e., Jio, margins have improved from 18% to 20% in FY20 with topline growth of 40%. RIL's retail business has also shown improvement in margin in FY20 from 4.2% in FY19 to 5.1% in FY20 along with 25% revenue growth in the previous fiscal.
“We are recommending investors to subscribe to the rights issue of Reliance Industries Ltd. as we are positive on the future prospects of the company on the back of strong traction in the digital and retail business," said Roy, adding that "RIL has built up a dominant position in both the telecom and retail business where it is the market leader."
- RIL's promoter and promoter entities which have a 50.7% stake in the company have pledged to buy the full extent of their entitlement and also subscribe to all unsold shares in the rights issue. This shows promoter's commitment and confidence in the company's future growth, analysts say.
How to apply for Reliance rights issue: (Last date: June 3, 2020)1. If you have Reliance Shares as of 14th May, you are entitled to apply for the Rights, too. This entitlement is currently shown in your Demat account
2. There is no max limit. You can apply for any number of shares in this issue.
3. Up to entitled shares are guaranteed allotment for you (i.e. your rights entitlement based on 1 for every 15 shares currently held).
4. Anything more than entitled shares will be decided by the company if you apply for more shares.
4. If you don't want to apply for these rights shares, then you could sell your rights entitlement in the stock market also just like any other stock.
5. If you want to sell in the stock market, the option will be available from 20th May i.e. Wednesday. The current price is Rs. 163
6. Similarly, if you want more of these rights entitlement, you can buy from the stock market
7. If you buy another 100 of these rights entitlement from the stock market then you will have a total guaranteed allotment of 100 in rights
8. Rights shares will be allotted at Rs. 1,257/- per share.
9. Out of this, 25% i.e. Rs. 314.25 per share, has to be paid now.
10. The balance will be paid in two future instalments. Expected 25% in May 2021 and 50% in Dec 2021