Analysts at HDFC Securities said the recent correction in Reliance shares is overdone. The domestic brokerage has an ‘add’ rating on RIL with a target price of Rs 2,825 based on recovery in the O2C businesses, improvement in ARPU, subscriber addition, new revenue streams, and further value unlocking in the digital and retail businesses.
), India’s largest company by market capitalisation, are yet to recover from the tax shock that came in at the beginning of this month. The stock is down 8 per cent so far this month even as most brokerages are singing a different tune and amid reports that the Indian government is considering lowering the windfall tax as global oil prices decline.
Securities said the recent correction is overdone. The domestic brokerage has an ‘add’ rating on RIL with a target price of Rs 2,825 based on recovery in the O2C businesses, improvement in ARPU, subscriber addition, new revenue streams, and further value unlocking in the digital and retail businesses.
The stock has been underperforming because of the levy of Special Additional Export duty (SAED) on exports of petrol, diesel and ATF.
Following reports said that the government will consider lowering windfall taxes on fuels, and oil on July 15 tomorrow, RIL shares edged up to 2.4 per cent before paring most of the gains to settle at Rs 2,396.95 on BSE (up 0.83 per cent).
“While the imposition of export levy remains a material short-term negative for the exporting refineries, we remain optimistic on government reducing/withdrawing the duty during its fortnightly reviews with improvement in the availability of fuel in domestic market and reduction in auto-fuel marketing losses as international prices decline,” HDFC Securities said.
Global brokerage CLSA said the quick and dramatic fall in crude and product spreads significantly reduces any ‘super-normal’ gains for refiners as well as crude oil producers and possibly questions the need for the continuation of the windfall tax imposed about two weeks ago.
JPMorgan had also termed the stock reaction as excessive. In a note to investors, it said the fall offers an attractive entry opportunity. It said RIL will have strong underlying cash flows and earnings even after paying export tax.
Stating that RIL can manage the changes better, Morgan Stanley said RIL’s GRM would be negatively impacted by US$6-8/bbl realistically vs the earlier margin of US$24-26/bbl. “This would still be above our base case estimates on earnings. Every US$1/bbl impacts RIL’s earnings by 2.5-3 per cent,” it said.
Motilal Oswal, too, has a ‘buy’ rating on RIL and a target price of Rs 2,874. “Key risk would be non-reversal of the duties even after normalization of the refining margins,” it said.
Out of the 34 analysts covering the stock, 20 have strong ‘buy’ ratings and only 3 have ‘sell’ ratings, shows Trendlyne data. The average price target of Rs 2,907 signals an upside of 21.7 per cent from current levels.