RIL would profit from decrease leverage and decrease carbon footprint.
A fall in crude value and Aramco’s US$75bn annual dividend dedication have delayed the RIL O2C stake purchase in our view. The corporate not too long ago reiterated its deal with downstream investments in India and China. It may replicate its downstream funding mannequin in China by an funding in RIL’s O2C enterprise. RIL would profit from decrease leverage and decrease carbon footprint. Reiterate ‘purchase’ on RIL.
Enlargement in India: Aramco’s IPO prospectus talked about it’s focus its downstream investments in excessive progress economies of China, India and Southeast Asia. Just lately, CEO reiterated India focus: CEO Amin Nasser in a Dec-20 interview stated that whereas quick time period changes have been necessitated by low crude value, they proceed to pursue alternatives in high-growth markets of India and China. He’s concentrating on oil to chemical (O2C) investments in India and China and expects sturdy progress in chemical compounds in India.
Current China footprint: Aramco has an fairness stake in China’s largest O2C mission at Zhejiang with a long-term crude provide settlement and a plan to construct a community of stores. It additionally has a gas retailing JV with Sinopec working 1,000 stores.
An identical footprint doable in India: An funding in RIL’s O2C subsidiary may give Aramco an analogous footprint-a stake in India’s largest O2C mission with a long run crude provide settlement and a participation in gas retailing by way of the RIL-BPJV. Because it didn’t go about organising green-field O2C capability in China and no different Indian participant is contemplating a O2C transition, an funding in RIL’s enterprise seems a logical possibility.