UBS downgrades Reliance Industries share, stock trading flat

Share price of Reliance Industries (RIL) was trading flat in afternoon session today after brokerage UBS downgraded the stock to neutral from buy.  The large cap share is 3.01% away from all time high of Rs 2198.7. Reliance Industries share is trading higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages .RIL share fell 0.05% to Rs 2134 against previous close of Rs 2,134 on BSE.

In one year, RIL share has gained 92.39% and risen 41% since the beginning of this year. The share has climbed 17% in a month. Market cap of RIL stood at Rs 13.53 lakh crore on BSE.

Total 5.94 lakh shares changed hands on BSE amounting to turnover of Rs 127.08 crore. While assigning neutral call to RIL share , the brokerage said it believes that the firm's key segments - oil-to-chemicals, retail and digital - could face macro headwinds. However, UBS raised the target price to Rs 2,300 from Rs 1,700 after rolling over valuations to FY22.

The brokerage said discount to fair value of RIL has turned into a premium after the conglomerate has deleveraged ahead of investor expectations.

RIL share price has climbed 150 per cent from March low.

UBS said this premium would be justifiable given its leading presence in India's digital and e-commerce ecosystem. However, the pandemic-driven macro economic slowdown poses significant challenges for the Mukesh Ambani-led firm.

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"Although Covid-19 spurred adoption of digital and e-commerce, it also brings near-term execution challenges given RIL NSE 0.36 % is still in the maiden execution of its new commerce and fibre-to-the-home (FTTH) businesses," said UBS.

Outlook for petrochemicals is also challenging. To drive revenue growth, the firm's digital arm Reliance Jio could require further tariff increases in its mobility business as on-the-ground post-pandemic challenges hinder FTTH/mobility subscriber additions, said UBS.

Other brokerages are bullish on the stock.

Motilal Oswal in a note said, "Using SOTP, we value refining and petrochemical segment at 7.5 times to arrive at a valuation of Rs 545/share for the standalone. We have ascribed an equity valuation of Rs 1,125/share to RJio and Rs 580/share to Reliance Retail. Reiterate Buy with a target price of Rs 2,250/share."

Edelweiss  Securities in a report said, "On the path to zero net debt by FY22, we  believe  RIL  would  comfortably  achieve  zero  net  debt  by  FY22  following  its  rights  issue and  stake  monetisation  in  several  businesses,  even  after  accounting  for  creditor  capex  and spectrum   liabilities.   Adding   the   creditor   capex   of   Rs 50,000 crore and   spectrum   liability   of Rs 20,000 crore,  we  reckon  an  adjusted  net  debt  figure  of  about  Rs 2.57 lakh crore.  

RIL  recently  raised Rs 2.13 lakh crore through a Rs 53,000 crore via rights issue and Rs 1.52 lakh crore from sale of Jio Platform shares.

Along with free cash flows, we believe that RIL shall comfortably turn net cash by FY22E. Maintain 'HOLD' with unchanged target price of Rs 2,105."

In Q1, net profit came in 30.6 per cent higher than it was in the same period a year back, and bettered the company's previous best of Rs 11,640 crore earning in October-December 2019.

The oil-to-telecom conglomerate said it logged a one-time gain of Rs 4,966 crore from sale of 49 per cent stake in fuel retailing venture to BP Plc.

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RIL's telecom arm Jio recorded a 183 per cent rise in standalone net profit to Rs 2,520 crore and covered up for drop in earnings from mainstay segments.

By Aseem Thapliyal

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