InvestorQ : Why has the stock of Reliance corrected sharply in the last few days? Where do you see the stock going from here?
Dawn Cherian made post

Why has the stock of Reliance corrected sharply in the last few days? Where do you see the stock going from here?

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Mitali Bhutta answered.
3 days ago
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Reliance Industries stock price fell 3% on Friday as investor focus reverted once again to its earnings after RIL announced that it had completed its fund raising programme by selling 10.09% stake in Reliance Retail Ventures for Rs.47,265 crore. RIL is now trading well below Rs.2000 after teaching a peak level of Rs.2300 just a few weeks earlier.

With the fund raising story over for the time being, the next challenge for RIL is to exhibit earnings traction to justify the surge in stock price. The stock had gained more than 150% since the lows of March 2020 this year. That rally was based on debt reduction trigger and sum-of-parts, which is more or less done and dusted as of now.

Brokers are beginning to downgrade RIL already. In fact, Macquarie Research issued an underperform rating on RIL with a price target of Rs.1195, which does look ridiculously pessimistic at this point of time. This was on the back of the 15% decline in its net profit as well as a steep fall in refining margin.

But most analysts are clearly missing out on something very important about RIL. It is not longer a traditional oil and gas company any longer. If you look at the valuations today, the O2C business is only accounting for about 35% of the total market cap of RIL with retail and digital accounting for the balance 65%. In the latest quarter, the shift is evident in terms of top line and also bottom line. There is clearly mis-judgement.

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