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How far can RIL share price rise on Mukesh Ambani’s new energy push? Brokerages mixed; check targets

Reliance Industries share price has slumped more than 5% since yesterday morning, despite Mukesh Ambani’s ambitious new energy plans that will see the company invest Rs 75,000 crore over the next three years. While analysts see the new energy business as the next potential value creation engine for RIL, investors seem unimpressed. Today the stock is down 2.6%, trading at Rs 2,097 per share as the worst-performing stock on the BSE Sensex.

On New Energy business
Kotak Securities – Analysts at Kotak Securities believe RIL’s new energy push will be supported by policy incentives. “We believe RIL’s foray could benefit from policy initiatives to encourage domestic manufacturing of solar energy equipment, such as import duties of 25-40% proposed on solar PV cells and module from April 2022 and incentives under PLI scheme,” they said.

Edelweiss – The move from its traditional cash cow to retail and new energy is believed to be an ESG positive move. “We view this as a significant ESG positive. The market may have reservations in the near term though on the start of a new large, long-gestation venture capital like investment subduing already low RoE in the near term,” analysts at Edelweiss said. New energy is expected to provide the next leg of growth.

Retail and Jio on a hyper-growth trajectory
Emkay Global – RIL’s new JioPhone Next, created in partnership with Google was another major announcement of the AGM. Analysts at Emkay Global see 28% revenue CAGR with margins expanding to 10%+ for the core retail business vs targeted topline growth of 3x in five years.

HDFC Securities – With the help of JioPhone Next and Jio’s additional investment in its network during the year and an additional spectrum, HDFC Securities sees Jio’s EBITDA at Rs 491 billion for FY23E with an ARPU of Rs 157. Mukesh Ambani siad that the retail unit of his conglomerate is on a hyper growth trajectory and should grow at least 3x in the next 3-5 years. “We expect RR’s FY23 EBITDA at Rs 142 billion and value it at an EV of Rs 3,802 billion,” HDFC Securities said.

Stock outlook and target price
Motilal Oswal – The brokerage firm has a ‘Buy’ rating on the stock with a target price of Rs 2,430 per share. “The higher multiple for the Digital business captures the revenue opportunity, potential tariff hikes, and opportunity in the Feature Phone market. The higher multiple for the Retail biz captures the acceleration in store openings, digital commerce, and the new JioMart platform,” they said.

Kotak Securities – Analysts at Kotak Securities have maintained their ‘Add’ rating with a fair value of Rs 2,200 apiece. “. We like the long-term transition roadmap, albeit seeing a limited upside to our estimates and valuation in the near term,” Kotak Securities said.

HDFC Securities – HDFC Securities have maintained their ‘Add’ rating on the scrip with a target price of Rs 2,280 per share, down from its previous target of Rs 2,285. The brokerage firm believes the stock is currently trading at 10.9x March-23E EV/EBITDA and 21.0x March-23E EPS.

Edelweiss – Analysts at Edelweiss have retained their ‘Hold’ rating on Reliance Indsutries. “We argue that RIL’s FAANG-like valuation (Jio Platforms and Jio Retail) is misplaced as O2C and telecom make up ~70% of value,” they said.

Emkay Global – The brokerage firm has maintained its ‘Hold’ rating on the stock but increased the target price to Rs 2,330 per share from Rs 2,060 apiece earlier. Emkay has embed 10% premium to cash to account for the new energy business upside.

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GDR manipulation: Sebi bars directors of Sterling Biotech from accessing the securities market

Markets regulator Sebi has restrained the directors of Sterling Biotech Ltd from accessing the securities market in a matter pertaining to fraudulent issuance of global depositories receipts (GDR) by the company. They have further been restrained from holding any position of director or key managerial personnel in any listed company or any intermediary registered with Sebi during the period of restraint.

The directors are Nitin Sandesara, Chetan Sandesara, Rajbhushan Dixit, Vilas Joshi and Priyadarshan B Mehta. The officials are facing debarment from the securities market in the periods ranging between 3 years to 5 years each.
The investigation period was September 01- October 31, 2003.

The company came out with the GDR issuance of 2.32 million amounting to USD 15.37 million on October 1, 2003, Sebi noted in an order passed on Tuesday. Sebi found that the scheme of issuance of GDRs was fraudulent as the firm had entered into an account charge agreement with Banco Efisa Bank for a loan that was availed by Fresia Worldwide Ltd towards the subscription of GDR.

Besides, the account charge agreement was not disclosed to the stock exchanges. The GDR proceeds were pledged as security against the loan. “Sterling in connivance with Fresia devised a fraudulent scheme whereby Fresia received GDRs without paying any consideration for 80 per cent of the GDRs, at the cost of shareholders/investors of Sterling,” Sebi concluded.

Regarding the chairman and managing director of the firm, Nitin Sandesara and director Chetan Sandesara, Sebi said that they are also liable for the fraudulent scheme as they were fully involved in the day-to-day activities of the company. “The directors, namely Vilas Joshi, P B Mehta, Narendra Patel and Rajbhushan Dixit, who even though were Non executive Independent Directors, had clear knowledge of the terms of the Credit Agreement and the Account Charge Agreement,” it added.

Sebi noted that Sterling is in liquidation and that Fresia Worldwide Ltd has been dissolved, thereby, proceedings against the two entities have been disposed of. Through a separate order passed on Tuesday, Sebi exempted Resolute Enterprises Trust from the obligation of making an open offer following its proposed acquisition of shares and voting rights in Sanghi Industries Ltd.

Pursuant to the proposed acquisitions, the trust would directly acquire 5.11 per cent shares and indirectly acquire 26.39 per cent shares and along with the promoter group, will hold an aggregate of 70.33 per cent paid up equity capital in the firm, Sebi noted.

The pre-acquisition and post-acquisition shareholding of the promoters will remain the same and there will also be no change in the public shareholding of the company. The exemption granted by Sebi is subject to certain conditions, including that the proposed acquisitions should be in compliance with market other norms and other applicable laws.

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Returned Rs 17,777 cr to investors of 6 shuttered schemes: Franklin Templeton MF

Franklin Templeton Mutual Fund (MF) on Thursday said it has returned Rs 17,777 crore to unit holders of six shuttered debt schemes till June 15. This amounts to 71 per cent of assets under management (AUM) as on April 23, 2020, when the fund house shut its six debt mutual fund schemes citing redemption pressures and lack of liquidity in the bond market. Further, cash to the tune of Rs 580 crore was available for distribution as on June 15, Franklin Templeton MF said in a statement.

The schemes — Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund — together had an estimated Rs 25,000 crore as assets under management (AUM).

“The schemes have returned Rs 17,777.59 crore to unitholders amounting to 71 per cent of AUM as on April 23, 2020,” the fund house said.

Under the first disbursement in February, investors received Rs 9,122 crore, while Rs 2,962 crore were paid to investors during the week of April 12, Rs 2,489 crore in the week of May 3, and in the latest disbursement during the week of June 5, investors were paid Rs 3,205 crore.

In March, the Supreme Court accepted the standard operating procedure (SOP) finalised by SBI Mutual Fund to monetise assets and distribute the proceeds to unitholders of the six debt schemes of Franklin Templeton MF. SBI MF has been appointed as the liquidator for the schemes under winding up by the Supreme Court.

Last week, Sebi barred Franklin Templeton from launching any new debt scheme for two years and imposed a penalty of Rs 5 crore for violating regulatory norms in the case of winding up of six debt schemes in 2020. Also, it was asked to refund investment management and advisory fees of over Rs 512 crore (including interest) collected with respect to the six debt schemes. This amount will be used to repay unitholders, as per Sebi order.

Sebi had found several irregularities in the running of the schemes, which impacted the interests of unitholders and the asset management company violated provisions of mutual funds norms.

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Franklin Templeton CEO, fund managers fined Rs 15 cr by SEBI; forensic audit reveals discrepancies

Capital markets regulator SEBI (Securities and Exchange Board of India) has fined Franklin Templeton Trustee Services; FT AMC CEO Sanjay Sapre; and seven others to the tune of Rs 15 crore, in the matter relating to the abrupt closure of six debt mutual funds schemes last year. SEBI in its order said that the evidence seen by it does not indicate that the Trustees had exercised high standards of service, exercised due diligence, ensured proper care and exercised independent professional judgment to address risks. Earlier last week, SEBI had fined Franklin Templeton and asked it to return Rs 512 crore in management and advisory fees to investors.

CEO, CIO, fund managers fined
The SEBI order imposes a Rs 3 crore penalty on Franklin Templeton Trustee Services and another Rs 2 crore each on Franklin Templeton AMC CEO, Sanjay Sapre and CIO Santosh Kamat. Further, the order has imposed a Rs 1.5 crore penalty each on Kunal Agarwal, Sumit Gupta, Pallab Roy, Sachin Padwal Desai, and Umesh Sharma — all fund managers. The market regulator has also fined Saurabh Gangrade, the Chief Compliance Officer of the firm Rs 50 lakh. The order said that the penalty has to be paid within 45 days.

“The serious lapses and violations clearly appear to be a fall out of the FT-MF’s obsession to run high yield strategies without due regard from the concomitant risk dimensions,” SEBI’s order said. They further added that the terms of investment covenants were apparently not in the interest of investors and the deficiencies in the agreements were sought to be corrected through a ‘commercial understanding’.

Forensic audit reveals discrepancies
In the forensic audit, ordered last year, SEBI found that in the six closed schemes there were similarities in investment strategy although the investment objectives were different. “This was observed by way of high exposures in “AA and below” Corporate bonds in all the six schemes even though investment objectives as per the SIDs of these schemes are different,” the market watchdog noted. The audit found that in 42 instances (for FI-UBF) and 17 instances (for FI-LDF), exit options were in fact not exercised where available.

The audit also revealed that there were discrepancies in respect of valuation of securities where terms of the issue have been changed frequently which resulted in the declaration of incorrect NAV. It also found that FT failed to carry out due diligence with respect to investments in illiquid securities and observed that the pattern of investment transactions is “akin to giving loan to issuers”.

Franklin Templeton, reacting to the order said that disagrees with SEBI order. “We believe the company and employees have acted in compliance with regulations and in the best interest of unitholders in discharging their responsibilities. Based on our initial review of the order, we are considering all options with regard to next steps which may include filing an appeal before the Hon’ble Securities Appellate Tribunal (SAT),” a Franklin Templeton Spokesperson said. The six schemes under winding up have distributed Rs 17,778 crores to unitholders or 71% of the AUM of Rs 25,214 crores on the date of the winding-up decision.

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