The shares of Reliance Industries Ltd. (RIL) saw almost a 3% rise today after 8 consecutive down sessions. The stock has corrected nearly 20% in the last 4 months bringing the fair value down, closer to its conservative estimates. International Brokerage CLSA sees the share as a bargain buy, estimating the growth of almost 35% to reach Rs.2970 apiece in the coming year. 

Reliance Industries shares traded positively during the current session, rising 2.9% to Rs 2264.5 compared to the previous day’s close of Rs 2201.60 on the BSE. The company’s stock has declined 8.52% this year and 11.43% last year. The company’s market capitalisation in early trade was Rs 15.23 lakh crore.

Reasons for the Dip in Share Price

Reliance Industries Ltd (RIL) shares have stabilised after declining for eight consecutive trading sessions, indicating a base formation. However, several factors have contributed to the stock’s downturn. 

In the past, whenever RIL increased its capital expenditures (capex), the stock prices fell. This time, investors lack clarity on how RIL spends its capex and what returns they expect. Furthermore, the company’s net debt has increased to Rs. 1 lakh crore, and the rising interest rate has elevated the company’s interest expenses. 

Moreover, a slowdown in the telecom and retail sectors, which account for more than 50% of the company’s SOTP valuation, has put pressure on the stock in the wake of a rising interest rate environment. The petrochemical sector in the O2C segment has yet to recover its profit margins despite the reopening of China’s market, which was expected to boost margins. Additionally, the fall in crude oil prices and the selling by FIIs have contributed to the stock’s decline.

Furthermore, muted earnings growth, no communication on the potential listing of the telecom or retail businesses, and the lack of major launches in the oil-to-chemicals business have subdued the stock over the past 18 months. 

Reliance Price Targets

According to a report by CLSA, the stock of Reliance Industries Limited (RIL) is currently trading at just 5% above its conservative valuation based on a deal that happened almost three years ago for Reliance Jio and Reliance Retail. The stock is also at a 15% discount to the announced Aramco deal value for its O2C business. 

However, CLSA predicts that several upcoming triggers could drive the stock’s growth in the second half of FY24, including the ramp-up of its FMCG business, the launch of Jio Airfiber to increase wireless broadband additions, and a new affordable 5G smartphone to monetise its pan-India standalone 5G network by the end of 2023. Additionally, the company may launch an IPO for Jio and/or retail within the next year.

The recent brand launches, such as Independence and Campa Cola, suggest visible strides in RIL’s FMCG foray in 2023. 

Furthermore, CLSA suggests that cooling crude prices, pick-up in gasoline spreads, and the immediate removal of windfall taxes have resulted in higher refining margins. All these factors are expected to drive oil and gas profits higher in the March and June quarters.

Investors are advised to wait for a breakout above Rs 2,350 levels on a closing basis before initiating fresh buying. Until then, the stock is expected to remain within Rs 2,175 to Rs 2,350 levels. Those with this stock in their portfolio are advised to hold it with a stop loss at Rs 2,175 apiece level.