Sell Reliance Industries stock, say analysts at Kotak Institutional Equities; here is why

The start of FY20 has been quite upbeat for Reliance Industries (RIL) share price and it even touched an all-time high of Rs 1,406.80 this week alone. RIL continues to hold the largest market cap title, with a wide gap compared to IT-giant Tata Consultancy Service (TCS), which stands in second place. Reliance Industries stock performance has been stellar and riding on this, the company’s chief Mukesh Ambani has witnessed a substantial rise in his wealth. However, since the time RIL touched a new high, the stock has corrected. On Friday, RIL shares were trading at Rs 1,348 per piece down by Rs 5.05 or 0.37% on NSE at around 1308 hours. However, the company has touched an intraday high and low of Rs 1,363.90 per piece and Rs 1,343 respectively. 

Guess what! Experts have been downgrading their outlook on RIL share price, which indicates that rally in this company may well have come to an end. 

Because of Friday’s negative sentiment, at the current market hours, RIL has lost over Rs 3,600 crore of market capitalisation. At present,  RIL holds a market capitalization of Rs 8,54,614.39 crore compared to previous day where it stood at Rs  8,57,688.66 crore. 

This is also reflected in Ambani’s wealth as well. As on April 5, as per Bloomberg Billionaire Index, Ambani lost about $1.32 billion in last change price. Now his wealth stands at $54.1 billion taking the 11th rank in the index. However, overall in 2019, Ambani wealth has seen a surge of $9.80 billion. 

Where is RIL stock headed? 

Swarnendu Bhushan and Sarfraz Bhimani, Research Analysts at Motilal Oswal said, “Global refining and petrochem peers are trading at ~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.”

The duo added, “We value RIL using SOTP. We use 7.5x EV/EBITDA for refining/petrochem, DCF for E&P, 2.5x EV/sales for Reliance Retail and DCF for RJio. We roll over our valuation to FY21. With a revised TP of INR1,457, we downgrade our rating to Neutral due to limited upside in the stock.”

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On the other hand, Tarun Lakhotia, Rohit Chordia and Hemang Khanna analysts at Kotak Institutional Equities said, “RIL’s headline numbers from retail segment have surprised positively over the past four quarters. However, a significant proportion of growth in retail revenues has been boosted by low-margin Jio recharges and JioPhone sales, which along with fuel sales contributed more than half of revenues. Further, likely increase in lease cost pertaining to JioPhone may rule out a material expansion in margins in the near term, in our view. Reiterate SELL with the stock pricing optimism across segments.”

Hence, according to these analysts, the party seems to be over in RIL shares. However, investors can consider RIL as a worthy long term investment even as short terms shocks can be borne with patience.

Zee Business Disclaimer: The investment views conveyed by the  experts on Zee Business Online, are their own and does not come from the website or its management. Zee Business Online, advises investors to have thorough check with experts before making investment decisions.