Soon after CLSA raised Reliance Industries' (RIL) target price to over Rs 2,000 per share, the global brokerage firm Macquarie has downgraded the stock to 'underperform' saying most of the positives are already priced in. The brokerage added that it could be tactical buyers of RIL around Rs 1,200.
The move comes even after the company reported its highest-ever quarterly consolidated net profit at Rs 11,640 crore for Q3, up by 13.5 percent from the year-ago period. In the corresponding quarter last year, the company posted a net profit of Rs 10,251 crore.
However, RIL's consolidated revenue for the third quarter dipped 1.4 percent to Rs 168,858 crore from Rs 171,300 crore in the corresponding period last fiscal.
As per the brokerage, there are several things about the company to like such as entrepreneurial vision, disruptive bent, execution of large-scale complex projects, delivery on growth, strong positioning to capture future growth from India’s burgeoning digital economy, monetisation optionality, among others.
However, the brokerage cautions that its fundamental bear case is nearly 35 percent below the current price and it would assign at least a 30 percent weight to each of the risk factors.
Some of the key risks highlighted include no Saudi Aramco bid, Reliance Jio's average revenue per user (ARPU), no IMO benefit, and rising competition in the retail segment.
Hence, if an investor's mindset is 'growth at any price', one should stay long; but in its ‘growth at a reasonable price’ mindset it would book profit, the brokerage added.
"We believe several bullish factors have already been captured in our base case. Even still, we note downside to consensus forecast 2-year forward nearly 60 percent earnings growth versus Macquarie’s 45 percent base case," Macquarie stated.
However, most other brokerages are bullish on the stock, especially after its robust December quarter results. Morgan Stanley maintained 'Overweight' stance on Reliance Industries, with a target price of Rs 1,753 per share after 6 percent earnings growth which was above its estimate. CLSA also has a 'buy' call and a target price of Rs 2,010 as the oil-to-telecom-to-retail conglomerate showed the first positive free cash flow in over six years. While Jio's EBITDA missed by 3 percent, the retail segment had another stellar quarter.
In 2019, RIL emerged as the biggest wealth creator during 2014-2019 after a gap of seven years, according to a MOSL report. It added that the Rs 5.6 lakh crore wealth created by Reliance is the highest ever so far by a huge margin.
The company also made history in November 2019 by crossing and closing above Rs 10 lakh crore (trillion) market capitalisation. It is the first listed Indian entity to reach this milestone. In fact, it created a big gap of more than Rs 2 lakh crore between itself and TCS, the second-highest company in terms of market cap.
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