RIL stock ranges from "cautious" to "buy" after Q3 net drop

After Reliance Industries' third quarter standalone net profit fell nearly 8 percent due to inventory losses on plunging oil prices, brokerages Monday took a mixed call on the company stock ranging from "cautious" to "buy".

RIL Friday reported a 7.7 percent fall in net profit at Rs.5,085 crore ($822 million) for the third quarter ended December as compared to Rs.5,511 crore in the same quarter of 2013-14.

With a coverage view of "cautious" and a target price of Rs.1000 on the stock, Kotak said inventory losses due to the sharp decline in crude oil prices had been challenging for the company to mitigate through effective hedging policies.

"With a tough operating quarter behind us and potential value erosion from telecom/shale largely priced in, we believe RIL can outperform broader markets given its inexpensive valuations," Kotak said.

"Potential weakening of the global economy is a key risk to our positive stance," it added.

Barclays retained "overweight" rating on RIL stock with a target price of Rs.1,095. The brokerage said weak shale and inventory losses could weigh on the fourth quarter too despite rising margins but project start-ups could double Reliance's earnings per share (EPS) over the financial years 2016-21.

Axis Bank retained the "buy" rating on RIL stock with a target price of Rs.1,145, calling it the "top pick in the sector."

"FY16 will be an eventful year for RIL with (a) start-up of petchem, refining expansion projects and (b) likely rollout of 4G telecom services. While new capacities will help RIL in achieving strong EPS growth (19 percent compound annual growth rate over fiscals 2015-17), clarity on telecom roll-out will be a valuation trigger," Axis said.

ICICI Securities maintained the buy rating on RIL at the target price of Rs.1,148 citing lack of clarity in the company's telecom business operations as a concern.

"However, upsides from core business projects more than offset these concerns," ICICI added.

JP Morgan, however, remained neutral on RIL with a lower price target of Rs.915. "While 3Q earnings were negatively impacted by one-off items such as inventory losses, we believe the near-term earnings outlook remains challenging due to the latest JPM commodities research forecast of a lower oil/gas price environment along with potentially weaker GRMs (gross refining margins) as another mega-refinery starts up in Saudi Arabia," it said.

JP Morgan forecast RIL's fiscal 2016 net profit as "17 percent below consensus and implies an 8 percent year-on-year drop in earnings."

RIL stock closed Monday at Rs.879.85 a share, up 10.85 points, or 1.25 percent, over its previous close on the Bombay Stock Exchange.