The risk-reward for Reliance Industries RIL shares is attractive, even though analysts believe that near-term catalysts for the stock are missing. Data showed that FII ownership in the oil-to- telecom major hit a six-year low of 23.48 per cent in the third quarter. December was the fifth straight quarter of FII selling on the counter.
JPMorgan sees the recent range-bound Rs 2,300 -- 2,800 stock performance of RIL as a consolidation point of view, as the large foreign sale-off in the stock FII ownership in RIL is now at six-year lows in our view.
The December quarter, the data showed that FII holding in RIL fell 20 basis points sequentially. This was the fifth straight quarter of FII stake reduction, and the longest streak of FII sell-down since 2010.
The stock has underperformed the BSE Sensex year-to-date and in the last two years, even though analysts believe the underlying earnings outlook for Reliance Industries remains strong, driven by refining and E&P business.
There are 32 Buy ratings on the stock, two of them have 'Hold' ratings and the rest three analysts have 'Sell' calls on the counter. Nomura India has a target of Rs 2,850 on the stock. Jefferies believes the stock is worth Rs 3,100 and BofA Securities sees it at Rs 2,775. The consensus target for the stock is Rs 2,857. On Friday, the scrip settled at Rs 2,223. The stock has caught up in the overall India selloff, JPMorgan said, while suggesting a Buy rating on the stock. JPMorgan said that while there are no immediate catalysts, RIL continues to offer multiple growth options across businesses and ongoing investments should drive the next leg of earnings growth.
BofA Securities believes that the refining segment will be valued at 5.9 times FY 23 EV Ebitda, petrochemical business at 8.2 times FY 23 EV Ebitda and downstream businesses at 6.6 times FY 23 EV Ebitda.
This is a 10 percent premium to peer group average to factor in the integrated nature of business RIL's scale. We ascribe Rs 297 10 per cent of EV to clean energy business, a 2.7 times PIC, 40 per cent discount to the PBV of global clean energy peers. We value the offline retail business at 48 times FY 23 EEV Ebitda, Rs 917 in-sync with peers average Retail FY 23 EEV EBITDA base and for online Rs 148 we use 4 times price to sales multiple in line with global e-com peers, the brokerage said.
The option value of RIL could go up once the new energy business nears its commencement, according to Systematix Institutional Equities in a February note. It said while initiating coverage on the stock with a target of Rs 2,825, it was a couple of upside triggers including a hike in retail and Jio and monetisation of O 2 C and RIL Syngas.
JPMorgan said the RIL stock is 2 per cent above our bear case. The stock's compression in the last year seems to mirror the index derating rather than reflect new stock-specific risks.