Even In A Weak Market; MS Bullish On RIL Stock: Here's Why

Though the stock of Reliance Industries (RIL) has recovered significantly from its 52-week low price of Rs. 875.65 per share reached on March 23 amid market rout due to coronavirus, it is still far off i.e. by at least 25% from their 52-week high price of Rs. 1617.55. And even as there is high probability that the refining margin for the petrochemicals company will go down, some of the brokerages are highly bullish on the stock.

Even In A Weak Market; MS Bullish On RIL Stock: Here's Why

Here are discussed rationales for the same:

Goldman Sachs views that the current market price of RIL stock has discounted for the fall in oil price which may further decline in price and is hardly to take any respite from the historic production cut deal reached by the OPEC +.

And in view of this brokerage firm has placed the 'buy' call on the stock and recommended a target price of Rs. 1550. On Monday April 13, 2020, the stock of RIL closed lower by 2.52% at Rs. 1189.15 per share on the NSE. This implies even when the entire stock market is likely to see heavy sell-off amid the lockdown extension and other woes, there is seen further upside in the stock of RIL by as much as 30%.

In our view, despite challenges to refining demand in the near term, we expect Reliance to continue to outperform regional peers/benchmark margins due to a combination of having the highest refining complexity globally, operational excellence and favorable crude sourcing", said the brokerage in its report.

Also, the company said unique hedges in hydrocarbon venture can even benefit during times of recession.

Refining margins at the company are also to augment to $8.5 per barrel and further to $11.2 per barrel in the FY22 period.

Post covid 19 led lockdown is lifted the research firm sees fast recovery in company's earnings:

In its report the company said as the capex intensity will continue its downward trajectory, FMCG and company's telecom arm will help in rapid recovery in the company's earnings post lockdown. "We expect a rapid earnings recovery and a significant step up in FCF (free cash flow) even under the current challenging macro environment as capex intensity will continue to decline."

Also, as is the case now for the quarter ended March, the ARPU as well as customer base of Reliance Jio is moving higher and that can be similar for the company's retail space which in the post lockdown era may see takeover of other companies' customers.

Strong financials of the company

Even considering the worst scenario, with leverage coming down, the company's financials are seen to stay intact and sound. Also, the company's hydrocarbon asset together with focus to further deleverage will push up positive margins as hopes remain that the company's retail and telecom divisions continue to reap revenue for the company with not much harm due to the current lockdown.

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