Shares of Reliance Industries (RIL) ended in the green in intraday trade on June 7 in an otherwise weak market. The stock ended 0.20 percent higher at ₹2772.50 while the equity benchmark Sensex fell 1.02 percent.
Many analysts and brokerage firms are positive about the prospects of the stock as the situation around crude oil prices are expected to offer RIL's exploration and production business a significant boost.
Global brokerage firm Morgan Stanley pointed out that RIL's energy vertical is on track to deliver its best quarterly performance in more than 20 years.
"Refining margins are running almost 2 times above mid-cycle; petrochemical margins, despite China lockdowns, are up quarter-on-quarter (QoQ) and trending towards mid-cycle; and upstream profitability is at its best ever," said Morgan Stanley which has an 'overweight' call on the stock with a target price of ₹3,253, implying nearly an 18 percent upside from the stock's June 6 closing of ₹2766.90 on BSE.
Tightening global refining and chemical markets as the global cost curve inflects, rising market share and reduced competitive intensity in the telecom industry, and partnerships in the new energy business are the risks to the upside, Morgan Stanley said. On the other hand, a ban on single-use plastic (it could hurt margins in the medium term), delay in the monetization of its energy and telecom assets, and execution hiccups in new energy investments are the risks to the downside, said Morgan Stanley.
Nirav Karkera, Head Research, Fisdom underscored that rise in crude oil prices is expected to offer RIL's exploration and production business meaningful tailwinds while the company already has a strong base of investors rooting for significant success in the telecom and new energy space.
"Displacement in industries led by macroeconomic headwinds often opens up opportunities in terms of increasing market share, scaling distribution or diversification into complementary segments. RIL seems to be using current dynamics like wind under its wings," said Karkera.
He pointed out that while already diversifying through the acquisition of meaningful stakes in a variety of consumer brands, RIL continues to strengthen its portfolio through aggressive and synergistic partnerships like the 40 percent stake in Plastic Legno's India toy manufacturing business.
"The very recent notification on Reliance's Jio-BP partnership with Castrol and Morris Garages has stoked investor confidence in the group's earning prospects. This partnership marks the group's foray into building an integrated electric vehicle charging and service infrastructure at scale. The timing, nature and vision of the partnership have led many to expect the joint venture to establish market leadership in the EV infrastructure segment," said Karkera.
There are multiple fundamental factors which are driving the share price of Reliance Industries.
Arijit Malakar, Head of Research - Retail, Ashika Group underscored the news that Castrol India might tie up with Reliance Jio BP to sell lubricants in India and the company’s plan to enter into EV charging infra business provided a much-needed fillip to its share price.
The tie-up with Castrol India to sell lubricants in the Indian market is expected to open a huge growth opportunity.
Further, Reliance has recently opened free electric vehicle charging stations for its employees which has sparked speculation about RIL entering the EV charging infrastructure business and competing against Tata Power which is already in this business, Malakar pointed out.
In addition, Reliance management has plans to unlock the value of its telecom division through the IPO route and this expectation also fuelled the share price rally. There is also positive news that Reliance industries might import crude oil from Russia and then can sell it to global markets which could result in expansion in its GRMs, Malakar added.
Further, the company is acquiring many small and medium businesses in retail, chemicals, consumer goods and e-commerce industry to strengthen its presence across the industries and aspire to become the most powerful diversified company in India. Malakar said all these factors are driving the share price of Reliance Industries which is really creating a great empire of diversified business globally.
On the technical front, analysts believe RIL's Reliance's momentum in the short, as well as medium-term, is quite positive hence the short term trend is positive.
"The long term trend had reversed from up to down and till that doesn't reverse we maintain our long term bias negative/down for the same. So, this bounce should be considered a trading/short-covering bounce. The stock price, however, has recovered almost all its gain, despite the weak long term momentum. This indicates that there is a possibility of an all-time high on a closing basis i.e. above ₹2,820 and it can extend up to ₹2,900/2,950," said Jay Thakkar - Vice President & Head of Equity Research at Marwadi Financial Services.
Thakkar added that the stock has immediate support at ₹2630 on the lower side and till those levels are held the short to medium term trend will remain positive.
"If ₹2,630 breaks before reaching ₹2,900/2,950 then the short to medium trend would be said to have reversed from up to down i.e. inline with its long term trend. Below ₹2,630, the stock has a risk to slide until ₹2,450. So, ₹2,900/2,950 on the upside and ₹2,630 on the lower side are the important levels to watch out for," said Thakkar.
Some analysts expect a mild correction in the stock as most positives are already factored in.
Yesha Shah, Head of Equity Research, Samco Securities said from the recent developments in electric mobility solutions to its mega-plans for the Green Energy business, the firm is accelerating the next leg of growth in the long run. Further, considering the trajectory of crude oil, Reliance’s margins in its oil-to-chemical vertical have also continued to improve. Jio as well has been on a strong growth trajectory.
Shah believes all these positives have already been factored in the stock and the company is currently trading at elevated multiples. So a consolidation in the stock cannot be ruled out. Therefore, investors should refrain from creating fresh long positions in the short term in Reliance, said Shah.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.