)
Reliance Industries Ltd (RIL)’s share price has seen a sharp jump this month, buoyed by a string of positive recommendations by broking houses.
The stock has gained around 12 per cent this month, outperforming the benchmark BSE Sensex, which is up nearly six per cent. RIL, along with ITC, has contributed to the bulk of gains seen in the past two weeks.
The upgrades, triggered after the stock dropped to a 13-month low in last month, are on the back of addition of new capacities by the company and expected improvement in earnings due to increase in gross refinancing margin (GRM) in Singapore.
RIL's shares ended at Rs 922.4, up Rs 18.75, or 2.1 per cent compared to its previous close. The stock had dropped to Rs 810 on March 30, 2014, lowest level since February last year.
“We see the recent weakness in RIL’s stock price as an opportunity to ‘buy’ as the price adequately factors in concerns about a potential erosion in earnings/valuation from the imminent start of telecom services and weaker economics of ongoing core-business projects in a lower crude price environment,” said Kotak Institutional Equities in a report dated April 8. The brokerage upgraded the stock to ‘buy’ from previous rating of ‘add’ and increased its price target by four per cent to Rs 1,040.
Interestingly, Mukesh Ambani-led RIL hasn’t participated in the market rally seen in the past one year. Its stock fell nearly 30 per cent between May 2014 and March 2015, even as the benchmark indices rallied 30 per cent during this period.
Recent commissioning of new projects and expected foray into fuel retailing are seen as key drivers. In the long term, analysts expect listing of its retail venture and potential divestment in the telecom venture could create value for shareholders.
“We remain positive on RIL’s strategy of organic growth in its core businesses, and continue to see premium earnings delivery with the commissioning of new capacities. However, we see continuing risks to the overall refining/petchems space, with capacity overhangs and volatile commodity prices weighing on profitability. Furthermore, uncertainty over telecom spends is likely to continue to weigh on the stock,” said a recent by JPMorgan.
Most brokerages are expecting the March quarter numbers for RIL to be good on the back of improvement in GRM. Though crude oil prices have remained week, GRMs—the difference between crude oil and refined products— firmed up in 2015.
Domestic brokerage IDBI Capital expects RIL to report GRM of $9.6 a barrel in the March quarter, compared to $9.3 a barrel it reported for the same period last year. It also expects the petro chemical margin to expand to 9.6 per cent from 8.6 per cent in the fourth quarter of FY14.
The stock has a 12-month price target of Rs 1,063 in the consensus of analysts’ estimate compiled by Bloomberg.
