Reliance Industries slides 3% to two-month low; volumes surge on block deal

Shares of Reliance Industries (RIL) dropped 3 per cent to hit a two-month low of Rs 2,355 on the NSE in Wednesday’s intra-day trade on the back of heavy volumes. The stock was quoting at its lowest level since July 20, 2023.

Till 11:03 AM; around 23 million equity shares, representing 0.35 per cent of total equity of RIL, had changed hands on the NSE, the exchange data shows. The names of the buyers and sellers were not ascertained immediately. In comparison, the Nifty 50 was down 0.87 per cent at 19,958.

Since July 20, RIL started trading ex its financial services business--Jio Financial Services (formerly Reliance Strategic Investments). The demerged company will be involved in consumer and merchant lending, a fast-growing market in India, and will also foray into the insurance and asset management businesses.

In the past one month, RIL has underperformed the market by declining 5 per cent as against a 3 per cent rise in the Nifty 50.

The RIL stock has underperformed the Nifty50 index in the past year too. Several factors, including high capex pressure, rising debt, poor capital returns, and lack of clarity regarding the listing of Reliance Retail and Reliance Jio, have contributed to this, according to a Trendlyne Analysis.

Disappointingly, the management refrained from giving out any guidance on the listing of these new ventures, resulting in drop in the company's stock price post the Annual General Meeting (AGM).

However, analysts Prabhudas Lilladher believe RIL provides a good investment opportunity given its transition towards new age technologies and cash flow for growth serviced from traditional refining and petrochemical segment.

On the other hand, led by a sharp uptick in capital employed, which keeps running well ahead of earnings growth, RIL's RoCE has remained at moderate levels over the last 4-5 years, according to a report by ICICI Securities.

Despite a near 18 per cent CAGR in operating earnings over FY20-FY23, free cash flow (FCF) earned during the period has remained muted. Aggregate FCF earned during FY20-FY23 is a negative Rs 76,000 crore, with a small positive FCF earned in FY20 and FY22 offset by a sharply negative FCF of around Rs 1 trillion seen cumulatively in FY21 and FY23, as per the report. 

“While our estimates suggest a solid 18.6 per cent CAGR in earnings over FY23-FY25E, our concern on muted return ratios and limited FCF yield remains,” the brokerage said but kept its ADD rating on RIL with a target price of Rs 2,650 per share.