The Hindu Business Line
Reliance Industries (Neutral)
Reliance Industries’s stock price has almost tripled over the last five years, outperforming the Nifty by 122 per cent on a cumulative basis. This has been driven by the strengthening refining/petrochem businesses and the significant build-up in its retail and telecom segments.
Since our upgrade in October 2017, RIL has rallied by 59 per cent, outperforming the Nifty by 44 per cent. The stock now trades closer to our fair value. Moreover, we expect the core business to face headwinds in 2019.
Global refining and petrochem peers are trading at about 6x FY20 EV/EBITDA. We value RIL’s refining and petrochemical segments at 7.5x — the premium here reflects the company’s superior capability to manage the crude basket, refinery yields, hedging and multiple feedstock for its petrochem segment. While telecom and retail remain in a significant build-up mode, we have already factored this in our estimates. As there is limited upside from here, we downgrade the stock to ‘Neutral’ from Buy.