Reliance hits ₹1,000 as analysts turn positive

A host of positive reports by brokerage houses on Reliance Industries, prompted by announcements at last week’s shareholder meeting, drove the stock above the ₹1,000-mark intraday on Friday.

Shares of RIL hit a high of ₹1,006 on the NSE, riding over 2 per cent, before settling down to close at ₹996.50, gaining ₹17.45, or 1.78 per cent. This is an impressive recovery for the stock, which had stagnated in the ₹850-870 range for the past six months.

Citigroup reiterated its buy call on Reliance with a price target of ₹1,051. “We believe RIL’s recent outperformance should sustain, driven by three key fundamental drivers: operating profit to start growing after years of sustained decline (adjusted for currency benefits); return ratios to stage a gradual turnaround; and proportion of ‘unproductive’ capital to start coming off.”

A buy call from Kotak Institutional Equities pointed to the “robust earnings accretion from core business projects and strength in Asian refinery and petrochemical margins” as signs of a turnaround in the stock’s fortunes.

The biggest announcement at last week’s shareholder meeting was the December 2015 launch of Reliance Jio, the company’s much-anticipated entry into the telecom business.

Motilal Oswal, which initiated a neutral view on the stock, said the large-scale population coverage planned by Jio combined with low 4G handset prices can enable mass adoption of services in India.

Reliance is in the midst of executing its largest ever capex plan — over ₹2 lakh crore — in core and non-core businesses. The earnings growth from these investments is expected to start showing from FY17.

A buy report from brokerage house Antique noted the company’s expansion along the polyester chain and its petcoke gasification project that would convert low-value petcoke into high-value syngas, both of which will show results in the company’s profitability.

In a research note, UBS said it expected RIL to continue to outperform in its crude refining business against the benchmark Singapore complex refining margins. “We expect RIL to outperform peers with stronger GRMs of $9.5 a barrel in Q1 (vs $8.7 of Q1FY15) benefiting from its superior product mix, yield improvements and lower crude, energy costs.”

GRM, or gross refining margin, measures the difference between the cost of crude and the price of refined petroleum products. “If demand recovery sustains, we see upside to our RIL’s FY16 GRM of $8.7/bbl,” it said.

RIL’s Jamnagar refinery’s superior complexity refinery with Nelson index of 12.7 and near 110 per cent utilisation differentiates it from the US, EU and Asian refiners with complexity in the range of 6-11 and operating at utilisation levels of 80-87 per cent. Fuel retailing is another vertical that is expected to gain traction in the coming years. A report by Citi said the company “aims to recapture an ambitious 13 per cent of the domestic market share in fuel retailing through recommissioning its entire network of outlets. This could boost overall GRMs by a considerable $0.6-0.7 a barrel.”