Perfect time to lap up this battered index heavyweight? Analysts believe so

Mumbai: Analysts have been upbeat on the prospects of Reliance Industries (RIL) after a steep correction, even as they have cut earnings estimates for the oil-retail-telecom behemoth.

RIL shares have slipped nearly 24 per cent for the year to date, outperforming the benchmark Sensex which has lost about 30 per cent value in the same period.

The stock currently trades at Rs 1,158, 28 per cent away from its 52-week high of Rs 1,617 hit on December 20, 2019.

In last one year, the stock shed 15 per cent while Sensex dropped one-fourth of its value. However, the valuations may just have turned quite attractive for the investors to lap up this index heavyweight, analysts suggest.

RIL had 18 ‘strong buy’, 7 ‘buy’, 4 ‘hold’, 1 ‘sell ‘and 1 ‘strong’ sell ratings on the Thomson Reuters Eikon database as of Tuesday, April 7.

Emkay Global has cut its FY21 and FY22E earnings per share (EPS) estimates for RIL by 25 per cent and 14 per cent respectively, building in lower earnings. It reduced the target price for the stock by 25 per cent to Rs 1,310, but maintained its ‘buy’ rating.

“RIL remains well-poised to outperform a market recovery and we remain OW (overweight) in EAP (Emkay Alpha Portfolio),” Emkay Global said in a note on March 26.

In a note on March 31, Motilal Oswal Institutional Equities said given the current shutdown of retail stores, Reliance Retail could see 4-5 per cent revenue loss; however, the pace of recovery is key.

It highlighted that there would be limited impact on Jio as drop in new subscriber addition/physical recharges would get offset by an increase in data consumption, and it should also gain from the weakening third player in the market – Vodafone Idea.

For the core business, the brokerage revised down RIL’s refinery throughput and petrochemical sales to factor in the COVID-19 lockdown, as the demand for both air and road transportation fuels has been drastically affected, leading to fall in cracks of ATF, petrol and diesel.

“Considering that the tide would soon turn in favor of the core segment, we highlight RIL as one of the top picks in the sector,” the brokerage said while maintaining its buy rating on the stock, but cut the target price to Rs 1,523 from Rs 1,820.

Some others seem to agree.

“Given incremental earnings growth is also largely premised on B2C segments, which in the longer run are otherwise less likely to be negatively impacted by weakness in crude orCovid-19, we remain optimistic on RIL’s earning potential,” Antique Stock Broking said in a note on March 18.

The brokerage said it considers the recent correction an opportunity to add RIL and maintained its ‘buy’ rating on the stock with a target price of Rs 1,435 per share.