The Hindu Business Line

Reliance Industries (Neutral)

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CMP: ₹1,373.8

Target: ₹1,457

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.

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