Experts suggest that Reliance Industries(RIL) makes for a perfect bet in the current market volatility as they foresee decent and long-term returns.
According to market experts, the recent fall in RIL shares of over 15 per cent in the past one month made the scrip attractive. The share price of the company corrected in past one month from Rs 1,005.80 on July 27 to Rs 853.45 on August 26.
Brokerage houses Sharekhan, KR Choksey Shares and Securities and IndiaNivesh Securities are bullish on the further movement of RIL shares.
On August 26, RIL was trading at trailing twelve months price-to-earnings ratio of 11.81 against industry P/E of 12.08, indicating undervaluation of shares.
In the last couple of years, backed by strong cash generation by its core segments, RIL has deployed substantial capital in the new line of businesses like retail and telecom.
The launch of its telecom business (Reliance Jio) is planned in the coming months; where the investment is more than Rs 80,000 crore till date. Analysts believe with better technology and service to offer, the business could grab a meaningful market share in a couple of years ahead.
Brokerage house Sharekhan said the continued weakness in global crude oil prices have raised concerns for oil and gas companies and the same is reflecting in their stock prices, but the trend has limited effect on earnings of RIL’s core business segments (refining and petrochemical), as it has the ability to pass on the cost variation as a refinery and petrochemical producer. Also, likely commencement of ongoing major projects (petcoke gasifiers and off-gas crackers) in its refinery and petrochemical businesses are going to lift the company’s core earnings substantially from the next financial year onwards. The core segments are expected to remain strong cash generators for RIL.
Sharekhan in a research note said, “We believe both the businesses are having long gestation period but also have a potential to create value. The retail business has managed to turn positive now and it enjoys a leadership position in India. Hence, going forward we see potential operating leverage from this business.”
Sharekhan and KR Choksey see RIL shares around Rs 1,100 and Rs 1,200 shares while IndiaNivesh Securties expects it can touch Rs 1,300 in the next few quarters.
For the quarter ended June 2015, the company reported a consolidated net profit of Rs 6,137 crore, up 3.82 per cent, against Rs 5,911 crore in the corresponding quarter a year ago. The company registered net profit of Rs 6,496 crore in the sequential quarter ended March 2015.
Gross Refining Margin (GRM) for the quarter stood at $10.4 per barrel as against $10.1 per barrel in the last quarter of the previous finanical year. According to analysts, refining margins of RIL increased both on QoQ and YoY basis due to strong gasoline cracks (19.8 in 1QFY16 vs 15.4 in 4QFY15) led by robust demand growth, lower energy cost and favorable crude differentials. Singapore refining margins weaken by $0.5 per barrel to $8 per barrel on a quarter-on-quarter basis (QoQ).
GRM is the difference between the total value of petroleum products coming out of an oil refinery (output) and the price of the raw material, (input) which is crude oil. The margins are calculated on a per-barrel basis.
Consolidated bottomline figures of the company jumped 4.74 per cent to Rs 23522 crore for the year ended March 2015. The company reported a consolidated net profit of Rs 22458 crore in the previous financial year year. Sharekhan expects the company will post net profit of Rs 22,287.70 crore and Rs 27,459.70 crore in 2015-16 and 2016-17, respectively.