Market heavyweight Reliance Industries shares are on a downtrend and slipped for the eighth session in a row, marking its longest losing streak since March last year. Its shares fell 1.93% on Monday’s trades to reach a 52-week low of ₹ 2180.00 apiece on the National Stock Exchange (NSE). Its shares were trading at ₹2191.60 apiece at 03:06 PM.
The fall in Reliance share price can be attributed to selling by foreign institutional investors. According to data compiled by JP Morgan, FII ownership in the stock has fallen to a six-year low. A few other reasons could be weak margins in its core business of oil to chemicals over the past three quarters, the absence of a tariff hike in the telecom sector and negative market sentiment.
However, Kotak Institutional Securities has a buy rating on the stock and has pegged its fair value at ₹ 3,000 over the next 12 months. This translates to an upside of 36.88% as compared to its current share price.
Global brokerage Jefferies has reiterated its buy recommendation on the conglomerate with a price target of ₹ 3,100.00. This indicates an upside of 41.44% as compared to its current share price. Tariff hikes, acceleration in retail throughput and removal of export duty and China’s demand recovery are triggers for any potential upside.
The brokerage said that it sees a limited downside to RIL’s earnings and also little value being ascribed to the company’s new businesses like e-commerce, green energy, FMCG, financial services and new petrochemical investments at its current market price.
It said that investor concerns like lower growth in the retail segment despite rapid floor space addition, a large rise in capex, and rising debt level are a few reasons why its share price has fallen. However, it said that the company will focus on improving the efficiency of this large floor space which should aid growth and operating leverage over the next two financial years.
Though the company’s debt is rising, its debt-to-equity ratio is near a 22-year low, indicating that the company’s balance sheet is in a comfortable position to fund growth.
Reliance Industries is a large-cap blue chip stock with a market capitalization of ₹14,62,919 crores. It has a low return on equity of 8.21% and an ideal debt-to-equity ratio of 0.40. Its shares were trading at a price-to-earnings ratio of 23.66 which is higher than the industry P/E of 5.00, indicating that it is overvalued as compared to its peers or that investors are willing to pay a higher price for its future earnings.
Reliance is a Fortune 500 company and the largest private sector corporation in India. It evolved from being a textiles and polyester company to an integrated player across energy, materials, retail, entertainment and digital services.
Written by Simran Bafna
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