Reliance Industries stock check: Down 3% in last one year, is it still a ‘buy’?

The recent volatility in the markets has also impacted the oil-to-telecom conglomerate Reliance Industries (RIL). The stock has underperformed benchmark indices in the last one year. The stock has lost 3 percent in the last 1 year as against an almost 11 percent jump in Nifty. Meanwhile, in 2023 YTD, the stock has added 9 percent versus a 7.5 percent rise in the benchmark.

According to a MintGenie poll of 32 analysts, 12 have a ‘strong buy’ call on the stock, 12 have ‘buy’, 5 have ‘hold’ and 3 have ‘sell’ recommendations.

Currently trading at ₹2,519, the stock is 4.4 percent away from its record high of ₹2,635.17, hit on July 19, 2023. It has jumped 25 percent from its 52-week low of ₹2,012.14, hit on March 20, 2023.

Earlier this month, the company posted June quarter numbers, missing expectations. It reported a year-on-year (YoY) drop of 11 percent in the consolidated net profit for the quarter ended June 2023 to ₹16,011 crore. Meanwhile, its consolidated revenue declined 5.3 percent YoY to ₹2.11 lakh crore. Sequentially, the consolidated topline declined 2.5 percent, and the bottom line fell steeper by 17 percent.

The drop in revenue was primarily due to the weak performance of the oil-to-chemicals (O2C) business. Revenue from this segment plunged nearly 18 percent YoY to ₹1.33 lakh crore. This business constituted 63 percent of RIL’s topline in the reporting quarter. However, both retail and digital services businesses reported double-digit growth this quarter.

The board also recommended a dividend payout of ₹9 a share, subject to the approval of the shareholders.

MintGenie collated views of brokerage firms and technical analysts to understand whether the stock is a ‘buy’ at this juncture or not. Let's take a look:

Fundamental Views

ICICI Securities: The brokerage has a ‘buy’ call on the stock with a target price of ₹2,650, indicating a 5 percent upside.

"RIL has continued its quest to create a diverse well-rounded portfolio of earnings growth over the last 5 years and this year has seen further strengthening of the same. EBITDA contribution from the erstwhile mainstay oil to chemicals (OTC) segment reduced by 2,958bps over FY19-23 to 41 percent while the share of retail and JIO had expanded (aggregate) by 2,158 bps over the period to 45 percent as of the end of FY23," said the brokerage. It further noted that led by a sharp uptick in capital employed, which keeps running well ahead of earnings growth, RoCE (return on capital employed) has remained at moderate levels over the last 4-5 years. It has seen the sharpest contraction in the retail segment while there has been a sharp jump in the returns from the upstream oil & gas segment.

The brokerage has also tweaked its earnings estimates marginally to factor in higher depreciation, lower other income, and higher tax partly set off by an increase in earnings in digital services (ex JIO). EPS reduced by 2 percent each for FY24 and FY25E, it said, adding that at its revised estimates, it still sees consolidated EPS CAGR at a material 18.6 percent over FY23-FY25E, with a lower 15.1 percent CAGR in EBITDA.

Motilal Oswal: The brokerage has maintained a ‘buy’ call on the stock with a target price of ₹2,920, implying a potential upside of 16 percent.

“Using SOTP, we value the Refining and Petrochemical segments at 7.5x EV/EBITDA, arriving at a valuation of ₹904/share for Standalone business. We ascribe an equity valuation of ₹750/share to RJio and ₹1,485/share to Reliance Retail, factoring in the recent stake sale and an equity valuation of ₹16/share pertaining to New Energy on book value. We reiterate our BUY rating with a TP of ₹2,920,” it said.

Kotak Institutional Equities: The brokerage downgraded the stock to an 'add' from a ‘buy’ post the Q1 earnings and cut its target price to ₹2,700 from ₹2,800, indicating an upside of just 7 percent due to a lack of near-term catalysts.

“Post JFS demerger, we now value RIL on higher share count (6.765 billion shares including treasury shares) and as a result, our earlier fair value of rs 2,800 would have been lower by 6 percent (nearly ₹170). We roll forward our valuation to June 2025E (from Mar 2025E) and now value R-Jio on DCF, implying 8.5 times March 2026 EV/EBITDA (versus 8 times EV/EBITDA for ongoing business and optional value of about ₹57,000 crore for duopoly). Our revised fair value is ₹2,700. Post the recent rally on the JFS demerger, and lack of near-term catalysts, the upside seems limited and we downgrade RIL to an 'add' from a ‘buy’,” said the brokerage.

Akhil Jalan, MD of Kamal Kumar Jalan Securities

"RIL has reiterated its capex commitment of $10 billion over 3 years in the New Energy business, and its readiness to double its investment, to achieve the Net Carbon Zero target by 2035; it has also restated the business roadmap and reported rapid progress in the setting up of the 5 Giga factories. As far as its Digital business is concerned, it reiterated the target for a pan-India 5G rollout by Dec’23, making India 2G-mukt by enabling existing 250mn 2G feature phone users to transition to 4G and connecting 50 million MSME businesses through its Enterprise connectivity solutions; however, it has doubled its target of connecting homes from 50 million earlier to 100 million. Further, it invested ₹51,400 crore in FY23 in the Retail business for aggressive store and warehouse expansion, growing its consumer brands and strengthening its Digital and New Commerce capabilities through organic growth, acquisitions & strategic partnerships. We reiterate BUY on RIL (TP of rS 2,980/share) as we believe net debt concerns are overdone, and also because RIL has industry-leading capabilities across businesses to drive robust 14-15 percent EPS CAGR over the next 3-5 years," he stated.

Technical Views

Gaurav Bissa, VP, InCred Equities

Reliance Industries has been one of the most stable large-cap names in recent times. The stock bounced from its strong demand zone of ₹2,000 and was seen inching higher at an increased pace. The stock has been one of the main reasons behind Nifty stability and it has been relatively stable during the corrections seen in the benchmark indices. The stock is trading near a 15-month breakout which will be confirmed on a weekly close above ₹2,600 levels. Once confirmed, the breakout is likely to push the price towards ₹3,000-3,200 levels, said Bissa.

Gaurav Arora - Derivatives Analyst, Religare Broking.

After a decent run-up from ₹2,260 to ₹2,630, the stock is now consolidating in a range of ₹2,460-2,570 after its demerger from Jio Financial Services. Off late, the stock witnessed substantial Open Interest addition in August futures in its up-move from ₹2460-2570 but these are the same positions that were covered off before 20th July on the occasion of the demerger, said Arora. “However, we anticipate the stock to continue trading with a positive bias. We maintain a positive stance in RELIANCE keeping the Stop Loss at 2,475 for an immediate target of 2,630,” he added.

Ashwin Ramani, Derivatives Analyst, SAMCO Securities

Reliance Industries has been consolidating in the ₹2,000- ₹2,600 range (adjusted for the Jio Financial Services demerger) for the last two years. The stock made a swing high of ₹2,593 on 29th April 2022 and fell until ₹2,000 levels on 20th March 2023. Recently, the price broke the previous resistance of ₹2,593 and made a high of ₹2,631 on 17th July on the day when Jio Financial Services was demerged but again failed to successfully sustain above it.

Since then, it has been consolidating in the tight range of ₹2,458- ₹2,631, and on a short-term basis, a decisive breakout on either side of the range is needed for the stock to find a clear direction. A breakout and close above the ₹2,631 level will lead the next leg of the rally, which can see the price moving north until the ₹2,900 level while a break below ₹2,458 can drag the price until the ₹2,300 level where its next visible support is placed, said Ramani.