Better petchem prospects, low-cost Jio smartphone launch push RIL stock

Shares of Reliance Industries are up more than 9 per cent over two days to Rs 2,160.45

Shares of Reliance Industries (RIL) are up more than 9 per cent over two days to Rs 2,160.45 on the BSE, and have traded higher for four straight sessions.
 
The stock has seen its sharpest intraday gain of 5 per cent in nearly two months, in each of the past two sessions. The rise is backed by heavy volumes.
 
In the past two days, the average trading volumes on the counter jumped nearly fivefold, with around 29 million shares changing hands (the NSE and the BSE combined). In comparison, an average of around 6 million RIL shares were traded daily in these two weeks.
 
The stock, both fundamentally and technically, appears on a firm footing.
 
In a report last Friday, analysts at Jefferies maintained their ‘buy’ rating on RIL with a target of Rs 2,580.
 
Polymer spreads, they believe, are at a decade-high on strong downstream demand. “Buoyed by polymers that comprise 45 per cent of its petchem portfolio, RIL’s portfolio level spread is nearing its decade high and is 30 per cent ahead of our estimate for FY22,” Jefferies’ analysts Bhaskar Chakraborty and Pratik Chaudhuri stated.
 
“RIL's petchem segment earnings before interest, taxes, depreciation, and amortisation (Ebitda) could be 50 per cent ahead of our estimate on operating leverage benefits if the current spreads were to sustain over FY22. This could drive 14 per cent upside to our consolidated Ebitda estimate,” they added.

 
The sustained strong petrochemical performance also improves the likelihood of an O2C (oil to chemicals business) stake sale in FY22, the analysts believe.
 
RIL’s digital arm, Reliance Jio, also recently launched a low-cost smartphone – which, analysts believe, can help it accelerate 2G to 4G migration of customers.
 
Last Thursday, analysts at UBS Securities Asia in a note said: “In line with Reliance Jio's intention of launching a $50 smartphone to accelerate 2G to 4G migration, the company has partnered with low-cost smartphone maker Itel to launch the Itel A23 Pro smartphone to Jio users for Rs 3,899 ($52).”
 
In addition, customers will also get benefits worth Rs 3,000 in the form of vouchers on select prepaid recharges. This phone was earlier available for Rs 4,999 ($67), they noted.
 
While UBS analysts had earlier anticipated Jio would likely work with Google to develop a lighter OS to bring down specs and costs, their note said the company has, for now, chosen to collaborate with Itel to bring down the price of an existing entry-level smartphone instead.
 
This move may have also played positively on investor sentiment in the past two days.
 
Technically, too, the stock appears to be headed higher and can scale past Rs 2,200. On Monday, too, the stock stayed above the resistance of Rs 2,050, supported by strong volumes. The surge over the last two days shows an upside bias with the moving average convergence divergence (MACD) also supportive of the upward direction. The weekly relative strength index (RSI) shows support of 40 value, which the counter held during the recent corrective moves. On the downside, the trend indicates firm support at Rs 1,950 levels.