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Shares of index heavyweight Reliance Industries slumped 8.62 per cent on Monday after the company on Friday posted a drop in September quarter net profit, as the pandemic hit sales of most of its products. This is the biggest fall for the stock of India's biggest conglomerate after March 9 crash, when it slumped about 13 per cent.
‘No economic moat’
Some analysts turned cautious on the stock post Q2 results, and see only a little headroom. Macquarie Research said: “We remain cautious as we still see no economic moat.”
The index heavyweight tumbled 8.62 per cent to ₹1,877, while partly-paid shares of the company tanked 10 per cent to hit the lower circuit limit and closed at ₹1,066. Reliance Industries on Friday,, after market hours, said that its consolidated net profit declined 20 per cent in the July-September quarter to ₹10,602 crore.
Reliance Industries, the only stock to top the ₹16 lakh crore market capitalisation mark in September 2020 as the company roped in a slew of investors for its Jio and Retail verticals, saw its m-cap declining more than ₹1 lakh crore on Monday to ₹12.69 lakh crore.
“On a 1-2 year view, we agree with India’s long-term digital opportunity, but we continue to see meaningful execution challenges and no moat particularly in retail for Reliance, our earnings and cash flow estimates are meaningful below consensus, and the stock is trading at our bluesky valuation," said Macquarie in research report with a Underperform rating and a target of ₹1,320.
Emkay Global, which maintained its Hold rating on the stock, but increase the target price to ₹1,970, said: “We deem the stock as fairly valued though upsides may come if Aramco buys into O2C at $75 billionn EV ($60 billion est.), global strategic majors enter Retail, and Jio-Retail get listed”.
Bullish brokers
However, other brokers such as Motilal Oswal Financial, IDBI Capital, Elara Capital and JM Financial, remained bullish on the stock.
“We upgrade to Accumulate from Reduce as the stock has corrected 8 per cent in the past two months, roll-over to FY23 offering 23 per cent EPS growth and increase digital services value that resulted in higher target price at ₹2,357 from ₹2,169,” said Elara Securities.
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