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Shares of Reliance Industries hit their one-month high on Thursday, as analysts now feel the company has more positives. The stock closed at ₹895.10 on the NSE, gaining over 3 per cent. The stock had hit a low of ₹796 on March 31 on worries over refining margins following slump in crude oil prices and uncertainty over its entry into the telecom arena.
According to analysts tracking the oil sector, the “worst seemed to be over” for the Reliance Industries’ stock. They expect the stock to perform well in the medium term.
“RIL’s profits stagnated in the last five years, leading to underperformance of 80 per cent. FIIs’ ownership and valuations are at multi-year lows. With nearly 70 per cent of $40-billion capex for F14-18e now behind, profits are finally set for a three-year CAGR of over 15 per cent,” said Morgan Stanley analysts Vinay Jaising, Rakesh Sethia and Amruta Pabalkar, in a research report.
Moderating concerns According to them, concerns on telecom are moderating. “Improving regulatory environment, cheaper spectrum portfolio versus incumbents, and improving ecosystem for 4LTE in China indicate an improving business case for Reliance Jio nearing the launch,” they added.
Morgan Stanley changed its rating from underweight to overweight on RIL, with a price target of ₹1,062 (earlier ₹922).
Kotak Securities has upgraded RIL to ‘Buy’ (‘Add’ previously) with a revised target price of ₹1,040. According to it, the current market price adequately factors in erosion of earnings/valuation from its telecom foray and weaker economics of core business projects in a lower crude oil price environment.
Scope for value creation In the medium term, commissioning of ongoing projects, foray into fuel retailing, listing of retail entity and strategic divestment in its telecom business could help create value for shareholders, Kotak Securities added.
RIL’s core business performance should improve in the medium term, led by a recovery in gross refining margins and improving petrochemical earnings, which could more than offset the lower US shale earnings, said Standard Chartered Securities, which has picked RIL as one of its top picks.
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