Reliance Infrastructure Ltd (RInfra) experienced a remarkable 20% surge in its share price on Wednesday, hitting the upper circuit limit of Rs 282.75. This impressive gain extends the stock's positive performance for the third consecutive session, marking a significant total increase of 34.23% for the year 2024. This bullish trend is largely attributed to a major announcement by the company regarding its financial restructuring.
The driving force behind the sharp uptick was RInfra's recent disclosure of a substantial reduction in its standalone external debt. The company revealed that it has successfully cut its external debt from an extensive Rs 3,831 crore to a significantly lower Rs 475 crore. This reduction was achieved through a strategic financial maneuver involving Invent Assets Securitisation and Reconstruction Pvt Ltd (Invent ARC), a lender that novated certain charged securities to recover its dues. As a result, Invent ARC’s entire fund-based outstanding amount has been eliminated, leading to a major decrease in RInfra’s debt.
In addition to this, Reliance Infra also cleared outstanding dues with key financial institutions, including prominent entities such as Life Insurance Corporation of India, Edelweiss Asset Reconstruction Company Ltd, ICICI Bank, and Union Bank. This proactive debt management strategy has significantly improved the company’s financial health, increasing its net worth to an impressive Rs 9,041 crore.
On the technical side, Reliance Infra’s stock has been trading favorably above several key moving averages, including the 5-day, 10-day, and 200-day simple moving averages (SMAs). The stock’s 14-day relative strength index (RSI) is currently at 76.72, indicating that it is in overbought territory. This level of RSI suggests that the stock has experienced strong upward momentum, but there may be a potential for a price correction in the near term.
From a valuation standpoint, the stock’s price-to-equity (P/E) ratio is negative at 5.89, while the price-to-book (P/B) value stands at 1.48. Earnings per share (EPS) are reported at (-)40.04, with a return on equity of (-)25.15, as per the latest data from the Bombay Stock Exchange (BSE). These figures reflect the financial challenges faced by the company despite the recent debt reduction.
Market experts have varying forecasts for the stock’s future trajectory. Ravi Singh, Senior Vice-President of Retail Research at Religare Broking, predicts that Reliance Infra could potentially reach Rs 290 in the near term. Singh advises investors to maintain a strict stop loss at Rs 270 to manage potential risks effectively.
Jigar S Patel, Senior Manager and Technical Research Analyst at Anand Rathi, identifies key technical levels for the stock. He notes that support is found at Rs 265 and resistance at Rs 308. Patel suggests that a decisive close above Rs 308 could propel the stock to Rs 320, with an anticipated trading range between Rs 255 and Rs 320 in the short term.
In contrast, AR Ramachandran, a Sebi-registered research analyst, provides a more cautious outlook. He acknowledges the stock’s bullish trend but warns that it is also in overbought conditions. Ramachandran points out that the next resistance level is at Rs 331 and recommends booking profits, suggesting that a daily close below Rs 247 could lead to a downward target of Rs 195.
Reliance Infra is a major player in various sectors, including engineering, procurement, and construction (EPC) services, power distribution in Delhi, and infrastructure development projects such as metro systems, toll roads, and airports. The company played a crucial role in the execution of the Mumbai Metro Line One project. As of June 2024, the promoters hold a 16.50% stake in the company, reflecting a significant level of insider confidence in the firm's future prospects.
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