This was when the stock hit a record high of Rs 2,368.80 in September 2020. Since then, the stock has come off 19 per cent, and Ambani’s fortunes have dropped to $73.9 billion. He is no more in the top 10 billionaires list. The dominance of RIL shares in the market benchmarks has also reduced significantly, though most brokerages still remain bullish on the stock.
CLSA said it has an ‘outperform’ rating on the stock with a price target of Rs 2,250, but believes it would not be easy for the company to deliver on elevated earnings expectations.
While the brokerage sees “hard work and consolidation in 2021” and expects RIL to take steps to strengthen e-commerce and technology offerings, it fears EPS downgrades as telecom tariff hike has been the biggest driver of EPS growth for the oil-to-telecom firm.
“Elevated expectations and earnings are an overhang,” the brokerage said.
Axis Securities said five stocks, including RIL, accounted for 47 per cent of the 6,372-point rally that Nifty witnessed from 7,610 to 13,982 level last year, after making a bottom on March 23.
“RIL’s contribution to the rally has reduced significantly to 13 per cent today from 28 per cent three months back,” the brokerage said.
Dipan Mehta, Director at Elixir Equities, called RIL’s underperformance a part and parcel of market behaviour. He said the stock had been a strong outperformer in the past three years due to the transformation taking place in the company. “Investors need to be a little patient,” he said.
“I think the decline we are seeing in Nasdaq is impacting the RIL stock as well, because the latter is now positioned more as a digital business. That is where a lot of the value creation happened. Now that there is some softness on that investment theme, we are seeing some selling pressure here. Also, when RIL was rallying, it was the only game in town. It was the only stock where a lot of traders, investors piled on to,” Mehta said.
The RIL stock has fallen 15 per cent in the last three months, compared with a 21 per cent rise in Nifty50.
“But now, the market rally has broadened significantly and there are many investment opportunities and many investment themes, which were not there in the last two-three years. Therefore, money is shifting out of largecaps like RIL, which have generated significant returns. This is perfectly natural. If you still have a 3-5 year view, RIL should still generate pretty decent returns, which will be higher than Sensex and Nifty,” he said.
Chakri Lokapriya, CIO & MD at TCG AMC, said the paus in the RIL stock is not much of a worry with oil prices and demand rebounding across the globe. “Its main underlying oil refinery business will do well and as the execution of each of its new initiatives with Facebook, with Reliance Retail for the local mom-and-pop stores — as each one of those things roll out, we will begin to see a greater traction in RIL. It is still a good long-term buy. I would continue to hold the stock,” he told ETNOW.
What do analysts expect for Q3?
Edelweiss in its oil & gas preview projected RIL’s consolidated Ebitda to dip 8.3 per cent YoY, but increase 8.3 per cent sequentially led by strong petchem margins. It sees gross refining margins (GRMs) at $5.8/bbl , which would be flat sequentially.
It sees an Ebitda rise of 34 per cent sequentially in the retail business due to higher footfalls amid the festive season and a 6 per cent sequential increase in RJio’ Ebitda. “RJio subscribers would increase to 416 million from 406 million currently, and Arpu to increase to Rs 148 from Rs 145,” it said.
Emkay Global expects sequential consolidated Ebitda to rise 11 per cent to Rs 21,000 crore on the back of a recovery in retail and O2C income.
“Refining should improve on higher volumes and some improvement in GRMs to $6 per barrel. Petchem should be driven by an 8 per cent QoQ rise in margins. Retail Ebitda is estimated at Rs 2,570 crore, up 28 per cent QoQ (down 6 per cent YoY). For Jio, we expect 75 lakh net subscriber additions and 2 per cent Arpu growth QoQ at Rs 147.90,” Emkay said and projected consolidated PAT post (Jio Platforms-Reliance Retail minority interest) to rise 26 per cent QoQ to Rs 12,000 crore.
Other income should rise while interest cost should fall 23 per cent QoQ due to deleveraging, it said.