RIL shares fall to 3-month low; brokerages still not recommending ‘sell’, eyeing Jio, retail growth

Shares of Mukesh Ambani’s Reliance Industries Ltd (RIL) fell to a three-month low of Rs 1,946 per share on Monday morning, as the stock tumbled over 5%. The oil-to-telecom conglomerate reported a net profit of Rs 10,602 crore in the July-September quarter, down from Rs 15,055 crore in the same period last year as revenues dropped. With the recent fall, RIL shares are now trading at a three-month low price. This is the first major single day correction that RIL stock has seen since May this year.

Triggers have played out

With falling profits, RIL’s saviours for the quarter were once again the consumer facing business that Mukesh Ambani has patiently carved out in the recent years — Reliance Jio and Reliance Retail. RIL’s traditional cash cows, the oil and gas business, petrochemicals, and refining business were still way off their pre-coronavirus revenue levels but digital services was better than the previous year and the retail segment was inching towards the same goal. “In our view, primary stock triggers — deleveraging, asset monetisation, digital momentum — have played out,” said Edelweiss Securities, while putting a ‘Hold’ call on the stock with a target price of Rs 2,105 per share. Edelweiss said that RIL’s digital offerings are yet to gain notable traction.

Await better entry price

Mukesh Ambani has been using the receipts for his retail business and Jio platforms to trim his net debt. Kotak Securities noted that net debt for RIL now is at Rs 1.54 lakh crore. However, the brokerage and research only has an ADD rating RIL as it raises EPS for this fiscal but trims them for the next one. “We await better entry points amid limited progress on JioMart, FTTH and other digital initiatives, while retaining ADD with Fair Value of Rs 2,150,” they said in a report. 

Growth in Jio, Retail and revival of O2C

On the other side of the aisle, brokerage firm Motilal Oswal has a ‘Buy’ call on the stock with a target price of Rs 2,240 per share. “RIL believes the domestic market for petroleum products is poised for recovery. We believe revival in domestic demand, particularly in the Agriculture, Auto, and FMCG sectors, would support RIL’s operating rates and margins further,” Motilal Oswal said in a report. The brokerage firm values the Refining and Petrochemical segment at EV/EBITDA of 7.5x to arrive at a valuation of Rs 723/share for the standalone. Reliance Jio has an equity valuation of Rs 900/share in their view and Rs 627/share is the value of Reliance Retail, factoring in the recent stake sale.

The most modest of price estimates is by JM Financials with a target of Rs 2,500 per share, aided by a strong FCF generation phase with major capex completed and strong 17-18% EPS CAGR likely over the next 3-5 years, led by digital and retail businesses. Despite the slip in numbers, leading domestic brokerage firms do not see RIL has a stock that investors should avoid at this juncture. RIL has a mean target price of Rs 2,160 apiece, according to Refinitiv which takes into account recommendations by 32 analysts. The stock now trades at Rs 1,941 per share, from here to reach the mean price it would gain over Rs 200 per share.