Index heavyweight Reliance Industries continues to underperform the broader benchmark index Nifty 50 even in FY14, continuing its subdued trend over the past four fiscals. Although brokerage houses have started revising their views in the past four months, the stock remains range-bound due to a few concerns. Investors will do well to wait and watch.
Despite a significant weightage on benchmark indices such as Nifty 50 and the BSE Sensex, Reliance Industries has gained just 1% during the past three months, against the 11.5% gain in the Nifty and 10.4% in the BSE Sensex. A Bank of America Merrill Lynch report said that RIL stock price has underperformed the BSE 30 by 98% since April 2009 due to its weak EPS growth (CAGR of 4% for FY08-13) and de-rating of its E&P. Even after its continued underperformance, analysts in brokerages have been bullish, of late.
According to data compiled from Bloomberg, just 50% of 56 brokerage analysts tracking the company had a ‘Buy’ recommendation at the start of September 2013. This has gone up to over 62% now. However, the improvement in ‘Buy’ recommendations has not been supported by any improvement in the target price. The average one-year forward target price was . 975 – or 14.3% above the then prevailing price – at the start of September, which stands at . 985 – or 13.2% above its closing price on Thursday. In other words, analysts are being bullish without really raising the target price.
This could be interpreted as an improvement in terms of visibility over future earnings, but earnings growth itself will be high. RIL has embarked upon an expansion programme and expects doubling of natural gas prices starting April 2014 and its forays in retail and telecom are close to reaching critical mass.
A Morgan Stanley report said that RIL is set to double its profits over F13-17e driven by higher gas prices and volumes and downstream expansion, with one of the most aggressive price target of . 1,156, or 33% above the current level. These bullish recommendations apart, investors are not biting owing to anumber of concerns. Concerns on implementation of the gas price increase and RIL’s dispute with the government on ‘cost recovery’, besides a weak outlook in refining margins over the next couple of years are reasons to worry. The BoAML report said that RIL’s FY15-16e GRM could be significantly lower than assumed and its gas price may not be hiked in April 2014. In that case, RIL’s FY14-16e EPS CAGR may be much lower – at 2-12% – as compared to our base case of 17%, it warns. Retail investors would be better off waiting for more clarity on these issues .
Despite a significant weightage on benchmark indices such as Nifty 50 and the BSE Sensex, Reliance Industries has gained just 1% during the past three months, against the 11.5% gain in the Nifty and 10.4% in the BSE Sensex. A Bank of America Merrill Lynch report said that RIL stock price has underperformed the BSE 30 by 98% since April 2009 due to its weak EPS growth (CAGR of 4% for FY08-13) and de-rating of its E&P. Even after its continued underperformance, analysts in brokerages have been bullish, of late.
According to data compiled from Bloomberg, just 50% of 56 brokerage analysts tracking the company had a ‘Buy’ recommendation at the start of September 2013. This has gone up to over 62% now. However, the improvement in ‘Buy’ recommendations has not been supported by any improvement in the target price. The average one-year forward target price was . 975 – or 14.3% above the then prevailing price – at the start of September, which stands at . 985 – or 13.2% above its closing price on Thursday. In other words, analysts are being bullish without really raising the target price.
This could be interpreted as an improvement in terms of visibility over future earnings, but earnings growth itself will be high. RIL has embarked upon an expansion programme and expects doubling of natural gas prices starting April 2014 and its forays in retail and telecom are close to reaching critical mass.
A Morgan Stanley report said that RIL is set to double its profits over F13-17e driven by higher gas prices and volumes and downstream expansion, with one of the most aggressive price target of . 1,156, or 33% above the current level. These bullish recommendations apart, investors are not biting owing to anumber of concerns. Concerns on implementation of the gas price increase and RIL’s dispute with the government on ‘cost recovery’, besides a weak outlook in refining margins over the next couple of years are reasons to worry. The BoAML report said that RIL’s FY15-16e GRM could be significantly lower than assumed and its gas price may not be hiked in April 2014. In that case, RIL’s FY14-16e EPS CAGR may be much lower – at 2-12% – as compared to our base case of 17%, it warns. Retail investors would be better off waiting for more clarity on these issues .
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