Reliance Industries hits 8-week low; down 7% in three days

Shares of Reliance Industries (RIL) are trading lower for the third straight day, down 3 per cent at Rs 1,303, hitting an eight-week low on the BSE on Wednesday. The stock was quoting at its lowest level since March 11, 2019, and has lost 7 per cent in the past three trading days. In comparison, the S&P BSE Sensex has slipped 2.6 per cent during the same period.

RIL had outperformed the market in past four consecutive financial years, by gaining more than 25 per cent each since fiscal 2015-16. Between FY15-16 and FY18-19, the stock rallied 230 per cent, as compared to 38 per cent rise in the benchmark index.

Analysts at Jefferies have ‘underperform’ rating on RIL with 12-month target price of Rs 990 per share on concerns of uncertain free cash flow (FCF), energy margins at risk and ROCE also mediocre.

“With its priorities now different and segment EBITDA negative, RIL has been retreating from US shale having already written off half of its US$ 9.5 billion spend. Indeed, shale would cost RIL US$ 5 billion in net cash flow too if it could divest residual assets at the US$2.3bn carrying value but Pioneer's Eagle Ford sale suggests that this may be too optimistic. Data, hopefully, is not the new oil but expectations are lofty at around US$ 100 billion in implied Telecom/Retail EV,” the brokerage firm said in report dated May 8, 2019.

However, analysts at JP Morgan have ‘neutral’ rating on the stock with target price of Rs 1,300 per share.

“We maintain our Neutral even as valuations multiples while stretched, and core businesses environment weaker, possibility of stake sale in the consumer tech business to an external investor should keep the stock supported,” the brokerage firm said in report dated April 22, 2019.

Adding: "From a stock price perspective, at least in the near term, the weakness in the core energy business (refining and Petchem) is unlikely to weigh on the stock price, as investors continue to re-rate the consumer tech business higher. While consensus earnings estimates have been cut by around 12 per cent for FY20 over the last few months, and there could be more cuts if IMO 2020 disappoints, or the PX cycle turns weak. While CY18 was Jio’s re-rating, now it is the retail business which has been materially re-rated higher,"

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