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RIL shares fall 10% in two days, is it just the beginning of 30% downside target?

Reliance Industries Ltd’s (RIL) share price fell 2% on Wednesday morning once again to trade at a low of Rs 1,892 apiece. This is for the second consecutive trading session that Mukesh Ambani’s RIL is among the worst-performing stocks on Sensex. Going by analysts at multinational investment bank Macquarie, this may just be the beginning of the downfall for the oil-to-telecom conglomerate. In a recent report, Aditya Suresh and Abhinil Dahiwale of Macquarie cut their FY22-23 EPS estimates by 3% for RIL with a 12-month target price of Rs 1,350 per share.

The report said that RIL’s headline EPS growth in the October-December quarter was an impressive 9% on-year basis. This, according to Suresh and Dahiwale, was supported by 1% effective tax rate and $106 million investment gain booked in the retail division. “Adjusting for this and adding back an impairment in E&P, on our estimates underlying EPS was down 30% on-year,” they added. In the current fiscal year, it expects core EPS of RIL to fall 10% to nearly Rs 60. During the October-December quarter results, RIL consolidated the refining, chemicals, and fuel marketing businesses into a new ‘Oil-to-Chemicals’ (O2C) division. However, the firm refrained from reporting gross refining margins and the volume of petrochemical production.

Although Jio is now 411 million subscribers strong, Macquarie believes the number will inch up to 500 million by 2023 while raising flags over the slow subscriber addition in recent quarters. ARPU of Jio is now a Rs 151, but still below Bharti Airtel. “We believe Bharti Airtel’s ARPU will remain at a 10%-15% premium to JIO due to better quality customers. To the extent JIO decides to hold off on raising tariffs to grow market share, this would be a downside risk to earnings, with every Rs10 APRU making a ~2.5% impact on group EPS,” they added.

On the retail side, the report said that RIL’s core retail revenue will increase to $50 billion by the financial year 2030. EBIT margins are expected to jump from 4.5% in Financial Year 2021 to 5.5-6% in financial year 2022-23. “A key downside risk to this assumption is the discounting and fulfillment options RIL offers for JioMart,” the report said. In the latest quarterly results, RIL did not provide any category-wise revenue and margin.

For the refining segment, Macquarie expects an improvement from to $6.5/bbl in FY21E and $8-9/bbl in FY22-23. Meanwhile, for chemicals business, the report highlighted that earnings likely peaked in the fiscal year 2019 for the segemnt. “From a peak $5 billion chemicals EBITDA in FY19, we estimate $3.5 billion in FY22-23e driven by lower spreads across the board, the report added. The analysts see a slower recovery in Reliance’s refining and chemical margins, slower pace of ARPU hikes, lower retail margins as JioMart scales up, high competition in retail, higher working capital for retail, higher capex for JIO and retail, and higher minority interests among key reasons for their bearish views on RIL’s stock price.

“RIL consolidated ROE remains <8% even in FY25 on our estimates; we consider this sub-par in view of the current lofty 30x FY22 PE,” the report said. In a ‘bull case’ scenario the brokerage expects the stock to reach a price of Rs 2,050 per share. In its ‘bear case’ scenario the stock is expected to slip to Rs 910 apiece.

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Stove Kraft IPO: Issue opens for anchor investors, grey market premium jumps 26%; check price band

The Rs 412.62 crore Stove Kraft initial public offer (IPO) is set to open for subscription on Monday, January 25, in the price band of Rs 384-385 apiece. This will be the fourth public issue of the calendar year 2021, after the just-concluded Indian Railway Finance Corp IPO, and the ongoing Indigo Paints and Home First Finance Company India IPOs. Stove Kraft IPO comprises fresh issue of shares worth Rs 95 crore and an offer-for-sale (OFS) of up to 82.50 lakh equity shares. The anchor investors portion will open for subscription today, January 22, 2021. Stove Kraft shares were commanding a grey market premium of Rs 101 today. The shares were seen trading at Rs 486, implying an upside of 26 per cent over the IPO price in the grey market.

Abhay Doshi, Founder, UnlistedArena.com — dealing in Pre-IPO & Unlisted Shares — told Financial Express Online that as the brand name ‘Pigeon’ which contributes to 80 per cent sales is under dispute which seems to be a concern. The kitchen appliances manufacturer company, Stove Kraft, operates in a highly competitive market and has turned profitable just two years back. Stove Kraft has posted exceptional figures in the first half of FY21. “Owing to the euphoria in the primary market and small issue size for retail participants this might perform well on the listing. Even though Stove Kraft has posted good numbers in the first half of FY21, it would be more canny to watch the further performance before taking long term decisions,” Doshi added.

The OFS consists of 6.90 lakh equity shares by promoter Rajendra Gandhi, 59,300 equity shares by promoter Sunita Rajendra Gandhi, 14.92 lakh shares by Sequoia Capital India Growth Investment Holdings I, and 60.07 lakh shares by SCI Growth Investments II. Investors can bid for a minimum of 38 equity shares and in multiples of 38 shares thereafter for a minimum amount of Rs 14,630. The book running lead managers to the offer are Edelweiss Financial Services and JM Financial. While KFin Technologies Private Ltd will be the registrar to the issue.

Stove Kraft proposes to utilise the net proceeds from the fresh issue towards repayment or pre-payment of certain borrowings availed by the firm and for other general corporate purposes. Stove Kraft IPO is priced at 34.5x PE on a trailing basis. Keshav Lahoti, Associate Equity Analyst, Angel Broking Ltd, said that the company is a kitchen solutions and an emerging home solutions brand. The company is engaged in the manufacture and retail of a wide and diverse suite of kitchen solutions under our Pigeon and Gilma brands, and propose to commence manufacturing of kitchen solutions under the BLACK + DECKER brand, covering the entire range of value, semi-premium and premium kitchen solutions, respectively.

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RIL shares jump 3%, Future Retail, Future Enterprises hit upper circuit post SEBI nod on RIL-Future deal

Reliance Industries Ltd (RIL) share price surged over 3 per cent to Rs 2,119.80 apiece in a strong trade on BSE today. While shares of Future Retail Ltd and Future Enterprises Ltd hit their respective 5 per cent upper circuit of Rs 81.35 apiece and Rs 12.01 apiece, respectively. This surge in share prices was seen after the capital market regulator SEBI approved the Future Group’s proposed multi-billion dollar deal with RIL. Yesterday, market regulator gave a nod to Future Group’s scheme of arrangement and sale of assets to Reliance Industries. Moreover, Bombay Stock Exchange (BSE) also granted its ‘no adverse observation’ report to the Rs 24,713-crore deal. Last year in August, Reliance Retail Ventures Ltd (RRVL) announced plans to acquire the retail and wholesale business and the logistics and warehousing business from the Future Group.

Aditya Kondawar, Founder and COO, JST Investments told Financial Express Online that Sebi’s nod came as a dismay to Amazon who had written several letters to the market regulator and other regulatory agencies to not grant the deal a no-objection certificate. The Securities and Exchange Board of India has allowed the deal with some riders.

Since the middle of September 2020, RIL shares have corrected nearly 12 per cent. Last year in March, RIL hit a 52-week low of Rs 867.82 apiece led by a global sell-off due to COVID-19 pandemic. The Sebi’s nod to Future Retail and Reliance Industries Ltd deal has been a blessing in disguise for Future Retail investors, as AR Ramachandran, Co-founder & Trainer, Tips2Trade, told Financial Express Online that it allows them to have a better exit from the stock. “A close above Rs 82.5 could lead to a rally up to Rs 94 per share and even to Rs 100 per share in the coming sessions. While Rs 70 will act as strong support for Future Retail,” he added.

Meanwhile, S&P BSE Sensex was ruling at a record high of 50,184.01, up nearly 400 points, while the broader Nifty 50 index rallied to a fresh all-time high of 14,753.55.

“Company shall ensure that the shares of the transferee entity issued in lieu of the locked-in shares of the transferor entities are subjected to lock-in for the remaining period post scheme,” Sebi said. It also added that it was observed that there were certain ongoing litigations/arbitration/legal proceedings against the draft scheme.

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The limited upside in markets after the rally, Nifty to be at 15,000 by December 2021: Bofa Securities

After the strong rally since April, there is a limited upside in Indian equities and the markets will end 2021 with a low single digit gain, an American brokerage said on Wednesday.

Bofa Securities said it is ‘not as bullish’ and gave a target of 15,000 points for the 50-share benchmark Nifty by the end of the newly started year.

Markets have rallied by 80 per cent since April after a heavy 40 per cent correction following the announcement of the COVID-19-related restrictions. Many analysts, including RBI Governor Shaktikanta Das, have raised concerns over the over-heating in the markets.

The benchmark Nifty was trading 0.6 per cent up at 14,607 points at 1259 hrs on Wednesday. ”We are giving a target of 15,000 on the Nifty, which means there is a limited upside now. We are still bullish, but not as bullish,” its India equity strategist Amish Shah told reporters. He mentioned the strong rally witnessed by the markets in the immediate past for its more conservative view on the markets.

The brokerage is overweight on sectors including financials, metals and steel, and industrial, he said, adding that information technology, energy, consumer discretionary and auto are the sectors on which it is underweight.

Within the financial sector, Shah said the brokerage feels the banks are adequately provided for the possible asset quality reverses and called the prediction of a jump in the dud assets by RBI in its biannual Financial Stability Report as conservative. He said the valuations of banking and financial companies are also lower from the historical highs which make it an attractive bet, and adde d that there is also a chance of higher credit growth fueling earnings for select lenders which will make it an attractive bet.

On the metals and steel and industrials sectors, the call is driven more from a likely surge in capital expenditure from the government, real estate and infrastructure sectors which we should be seeing, he said.

The upcoming budget will have an expansionist bias in the fiscal policy while the inventory levels will dip in the realty sector, leading to a surge in new projects, he said. Shah, however, said that a full private sector capital expenditure cycle recovery is still two years away and it will be select sectors which will be seeing a growth in investments in 2021.

The target on the benchmarks also assumes a net addition of USD 10 billion to the foreign portfolio flows into the country, over and above the USD 22 billion in 2020, he said.

The foreign flows will continue on the back of stimulus measures and easy monetary policies in the developed world, he said, adding that Joe Biden will continue with such measures in the US on taking charge.

Shah also said that the government will continue on its reforms agenda in the new year as well and specifically pointed out power sector where there can be greater private sector play in distribution.

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