RIL: Bulls set eyes on Rs 3,500-mark as stock above support held since 2017

Reliance Industries (RIL) delivered a muted second-quarter (Q2) owing to the newly introduced windfall profit tax and lower refining margins. While revenue from the business grew 32.4 per cent, net profit witnessed a marginal dip to Rs 13,656 crore in Q2 of 2022-23 (FY23), from Rs 13,680 crore in Q2 of 2021-22 (FY22). Sequentially, the company’s net profit was down 24 per cent — from Rs 17,955 crore in the April-June quarter.

Commenting on the results, RIL Chairman and Managing Director Mukesh Ambani said the quarter saw record performance in the company’s consumer businesses, which continue to scale new milestones every quarter. READ MORE

Further, the oil-to-chemicals (O2C), retail, and telecommunications conglomerate also announced plans to demerge its financial services business and list it separately as Jio Financial Services.

After the Q2 results, foreign investment firm Jefferies lowered RIL’s earnings estimates. It, however, maintained the price target.

“We lower our FY23E earnings before interest, tax, depreciation, and amortisation by 2 per cent, accounting for weaker O2C with export duties capping margins, Jio estimates lower with limited benefits of operating leverage, and retail estimates higher incorporating strong first-half performance. We forecast 10 per cent adjusted earnings per share compound annual growth rate over FY22 through 2024-25E, largely driven by Reliance Retail and Jio. We maintain a ‘buy’ rating with a price target of Rs 3,090,” said the investment banking firm in a note.

Domestic brokerage firm Prabhudas Lilladher, too, lowered its earnings outlook on RIL and trimmed the target price to Rs 2,892.

“We cut FY23E earnings by 3.7 per cent to factor in 1) lower gross refining margins of $13/11 per barrel ($15/13 per barrel for FY23/2023-24E earlier) due to higher-than-expected impact of windfall taxes, 2) higher finance costs, and 3) higher expenses, but increased 2023-24 gas realisations to $11 per metric million British thermal unit ($10 earlier). The O2C segment in Q2 was hit by higher-than-expected impact from windfall taxes ($4.2 versus $1.8 per barrel expectation) and weak polymer margins (down 12-26 per cent on-quarter),” it said in its results update. VIEW REPORT

In trades so far on Tuesday, RIL traded on a sluggish note. It was down 0.5 per cent at Rs 2,468 (at 10.56 am). So far this calendar year, the stock logged its record high of Rs 2,847 in June this year. Notwithstanding subsequent correction, the stock still holds a 4.45 per cent gain on a year-to-date basis.

Even as the RIL stock seems to be struggling to cross the Rs 2,800-mark, the underlying strength has not let the bears knock off key support levels on the downside. The stock has been stoically standing its ground above the 2017 shield — which, in this case, has been its 100-Weekly Moving Average (100-WMA).

Since 2017, the stock has breached the 100-WMA support just once in the pandemic panic sell-off. However, in a post Covid-19 era, as the stock bounced back above 100-WMA, it doubled in just two years. On a broader time frame, the stock has delivered massive fivefold returns as it soared from Rs 500 in 2017 to reach an all-time high of Rs 2,847 in June this year.

The 100-WMA is currently placed at Rs 2,327. As long as the bulls defend this 2017 shield, RIL seems to be preparing the ground to hit new record highs.

On a short-term basis, the recent formation on the daily chart shows a ‘double bottom’ breakout that prompts a rally to Rs 2,700 and eventually past the levels of Rs 2,800.

A breakout above Rs 2,800 will trigger a fresh rally into uncharted territory, as the stock would move away from its one-year tussle.

As and when RIL takes off the upper ceiling of the brief sideways consolidation between Rs 2,800 and Rs 2,300, the positive upside will see the stock rally towards its target of Rs 3,500. CLICK HERE FOR THE CHART