Reliance Industries shares log best half-yearly performance since 2009
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Mumbai: Shares of oil-to-telecom conglomerate Reliance Industries Ltd (RIL) hit their highest closing level in more than nine years on Thursday, and the stocks which had started out as investors’ favourite have won back their love once again.
RIL shares rose 0.55% to close at Rs1,518.85 on Thursday, its highest since 16 January 2008. For the year to 30 June, the stock had jumped 27.79%, its best performance in the same period since 2009.
“I think that when the company is in capex mode, markets don’t give the advantage to its stock,” said Deven Choksey, group managing director at KR Choksey Investment Managers Pvt. Ltd.
According to Choksey, capacity in petchem and polymer, and refinery business is now reaping benefits, which will make significant contribution to earnings before interest, tax, depreciation and amortization (Ebitda).
“That will help the company to deleverage its balance sheet quickly,” said Choksey.
Currently, 61.53% or 24 of the total number of analysts tracking the stock have a “buy” or “overweight’ rating on the stock. If we look at every half calendar year data, RIL was least favoured at the end of June 2010, when only 31.25% of the total number of analysts rated it a “buy” or “overweight”.
The tide currently is in favour of RIL, with most businesses doing well, even as gross refining margins (GRMs) may be subdued in the June quarter as compared with earlier expectations owing to inventory loss as crude oil prices took a hit this year.
“RIL is expected to report a decline in its GRM in the quarter, led by narrowing light-heavy differential and inventory losses,” Motilal Oswal Financial Services Ltd said in its first quarter report on India strategy, released earlier this month.
“While we expect subdued profitability in the refining segment, petchem profitability is expected to increase YoY/QoQ, led by improved deltas and an increase in petchem volumes,” analysts at Motilal Oswal said.
Overall, the capex for RIL is likely to have peaked, and the monetization should kick off with fiscal year 2019 as a year of inflection, Morgan Stanley said in a report on 2 July. The brokerage has an overweight rating on RIL.
The brokerage argued that despite the large capex, RIL’s leverage ratio—net debt/equity ratio is 0.6 times, which was comfortable.
It expects RIL’s growth capex to steadily drop by two-thirds from fiscal year 2017 levels through fiscal year 2020, paving the way for average free cash flow (FCF) of $5.5billion, implying 8% yield.
“Their foray in consumer-facing businesses such as retail and Reliance Jio is further resulting in increase in earnings visibility. At the same time, one must remember that Jio has incurred huge capex in the fiscal year 2017,” said Choksey.
“If Indian stock market has to grow, heavyweights such as Reliance will have to participate big time. Now, that visibility of earnings from Jio also seems to be coming up, the stock is definitely featuring in many investors’ portfolio,” he added.