Brokerages betting big on RIL; stock likely to hit Rs 1400 in next 12 months

NEW DELHI: Analysts at top foreign brokerage firms are betting big on Reliance Industries Ltd, which reported better-than-expected results for the quarter ended June 30 last week on Saturday.

Reliance Industries Ltd, which has long been characterised as a sleeping elephant, surpassed Street expectations and reported a consolidated net profit of almost 1 billion, up 13.7 per cent YoY, for the first quarter of the current financial year 2015.

“RIL, which has been like a sleeping elephant for so many years, may finally show some strength. Huge capex lined up in oil & gas, retail and telecom will be the key to drive profits for RIL,” said A K Prabhakar, Independent Market Expert.

Shares of RIL have risen a little over 11 per cent in the last three years, underperforming benchmark index Sensex, which rallied a little over 40 per cent in the same period.

But now with huge capital expenditure lined up by RIL in retail, telecom and petrochem, analysts see the stock rallying up to Rs 1920 in the next three years and nearly Rs 1400 in the next 12 months.

Reliance Industries plans to invest Rs 35,000 crore this fiscal and nearly Rs 1.8 lakh crore of investment as capex in the next three years.

CLSA, UBS, Jefferies and Nomura have maintained their 'buy' rating on the stock, while JPMorgan has an 'overweight' rating, Credit Suisse maintains 'outperform' and BofA-ML has a 'neutral' rating on the stock.

UBS which maintains a 'buy' rating has the most aggressive target on RIL of Rs 1400 for the next 12 months and CLSA expects the stock to double in the next three years.

According to analysts, the quarter results are the step in right direction. Clarity on gas price, tariff and how the oil & gas major intends to utilise cash on its balance sheet will further boost the stock.

“Near-term investor concerns remain on large and rising telecom spend (INR53bn in 1Q, INR450bn to date) and gas price delays,” Nomura said in a note.

“While concerns on these issues remain, we highlight that RIL's near-term earnings growth will likely be driven by refining/ petchem expansion, and these remain on track,” added the note.

The brokerage firm has a positive stance on the stock and views the recent under-performance (down 13% from end-May vs Nifty up 4%) as an opportunity to accumulate.

RIL had cash and cash equivalents of Rs 81,559 crore ($ 13.6 billion). These were in bank deposits, mutual funds, CDs and government securities/bonds, RIL said in a statement.

Most analysts are betting on gas price hike for a short term trigger, while Shale gas, Jio and retail should support earnings in the long-term.

“In the near term, the gas price hike domestically would be a big trigger for Reliance earnings from a short-term perspective, but over the longer period of time, the other businesses would also contribute in a more meaningful manner,” said Mayuresh Joshi, Angel Broking.

“So, Shale gas is one business that would contribute in a meaningful manner and add to the bottom line for the company. Clearly, retail is one business out of the other businesses that need to clearly perk up," he added.