 "Reliance Industries valuation at 10-yr low")
The $1.55-billion fine for migrated gas from neighbouring blocks (of ONGC) is only one of the many factors weighing on Reliance Industries Limited stock. Despite RIL's decision to contest this penalty in courts, the stock has not moved much. Project delays, rising costs, and expectations of delayed breakeven for RIL's telecom venture, Jio, have kept the stock in check. (Breakeven is the point in a company’s development at which revenue equals cost, and neither a profit nor loss is made. Breakeven analysis attempts to locate the breakeven point in a company's operations and calculate the impact on profit of changes in output, costs, and selling price.) The share trades at 1.1 times the company's estimated FY18 book value; this valuation is closer to its 10-year low. The ratio of market value to net profit shows the share trading at 10.5 times the company's FY18 estimated net profit, which is below its average of 13.5 times. These valuations seem to price in most concerns around RIL, say analysts. Does this mean the stock could rally from here on? Not quite, at least for short-term investors.
In the past year, investors have been focusing on Jio as well as the timeline of new projects starting in the oil and gas business. These factors are key to bringing about a meaningful improvement in RIL's net profit, as well as return ratios. So, till progress on these, the stock might remain range-bound, say analysts.
"While core refining and petrochemical data have broadly ticked higher over the past few weeks, no major news on telecom or new projects is expected in near term. This could weigh on the stock in the short term," says Pinakin Parekh, analyst at JPMorgan in a recent report on the company. The brokerage has a neutral view on the stock, with a share target price of Rs 1,070.
In telecom, though new entrant Jio has managed to get 16 million subscribers till September, analysts remain concerned. Vinay Jaising of Morgan Stanley believes there is a risk for Jio in putting off its commercial launch by a quarter to April. If so, not only will losses widen but break-even will get pushed ahead. Jaising, however, is positive on RIL stock. His share target price of Rs 1,280 indicates potential of 28 per cent from current levels. RIL's oil and gas business has been doing well and the momentum is likely to continue. Most say new capacities could start in second half of FY18 and boost RIL's net profit. Long-term investors may buy the stock.
