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Analysts however, have not given up on the company. Over 80 per cent of all analysts have a buy report on the company, including most of the biggest names in the business. This despite the fact the Reliance has taken a hit on its gas business both in terms of volumes and price. There is no clarity yet on the launch date of its telecom business and the company continues to be plagued with the problem of plenty in terms of cash on its books but not much ideas to utilize them.
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Ahead of the fourth quarter numbers, we are witnessing most of the foreign brokers upgrading Reliance Industries. CLSA was one of the first broking firms to upgrade the stock. CLSA in its note has mentioned that the fourth quarter will be a record quarter as GRMs (gross refining margins) of the company will expand to a six year high of over $10 per barrel which will allow it to register its highest every quarterly net profit of Rs 6,250 crore.
Almost all brokers are bullish on the company because of a likely improvement in the fourth quarter numbers. Barclays in its report has said that Reliance has navigated the oil price crash well and they expect a 33 per cent growth in its refining profits despite a shutdown in the quarter which will result in lower volume.
Taking a longer term view, BNP Paribas says that material capital expenditure in Reliance is over and the company is now poised to reap benefits of its investments. Reliance had over the past few years invested $12 billion in its petrochemical business and $10 billion in its telecom business.
Morgan Stanley, however, seems to be the most bullish among the lot. The broking firm has come out with a ‘double upgrade’ on Reliance Industries saying that good news now outweighs bad news. The report says that Reliance’s profits have stagnated for the last five years which lead to an underperformance of 80 per cent. FII ownership in the company and its valuations are at multi year lows. Morgan expects Reliance’s profit to grow 50 per cent over a period of FY15-FY18 on account of its expansion.
Even if crude oil price is at $40 per barrel, Morgan expects the four downstream projects of Reliance which will be commissioned by the fourth quarter of FY16 to contribute to 37 per cent of growth in its operating profit. The company’s price to earnings ratio is at a five year low of nine times which is at a 40 per cent discount to the broader Sensex companies.
Despite these bullish reports, Reliance has not been in the limelight for investors. It is one of the first to fall and the last to rise in the market over the last few years. Though analysts are bullish on Reliance their price targets reflects caution. Morgan Stanley, the most bullish among the lot, has a price target of Rs 1,062, a 30 per cent gain from the current level which is lower than the high the stock has touched in the previous year. While, other frontline stocks are expected to touch new highs as per analyst expectations, Reliance despite the revised target price will be 60 per cent away from its peak.
It is this relative growth that is stopping investors to jump into buying Reliance. There are lot many other stocks available in the market that is better positioned to capture the India growth story. Reliance on the other hand, because of its size, will have to depend on global growth to gain traction.
Moreover, Reliance is not rightly dressed for the party. The current theme in the market is to capitalize on the ‘Make in India’ story. Ironically, Reliance is now a global player and has to wait for global growth to take part in the rally.
