The Reliance stock fell its most in seven months on Monday taking with it Rs 1.20 lakh crore of lost shareholder wealth while promoter Mukesh Ambani suffered a massive Rs 61,000 crore erosion in his net worth.
Investors resorted to profit booking amid concerns of expensive valuation and disappointment over the performance of its refining division even as they awaited fresh triggers to re-enter the counter.
The RIL scrip has witnessed an extraordinary run since March — rising almost 172 per cent from its 52-week lows as it mobilised nearly Rs 1.90 lakh crore in its digital services and retail subsidiaries and became a net debt-free firm.
However, observers had been cautioning about a pause in the rally as they felt that all the good news is already factored in the price with some even feeling that valuations in the stock have become aggressive.
Analysts at BNP Paribas said the company had become a net cash company and its valuation multiples have expanded with a shift towards growth-oriented businesses.
“With a large part of the stake sales done, we think RIL’s shares should remain range bound in the near term, awaiting a potential recovery in its oil to chemicals (O2C) business, especially in the light of the muted earnings prospects over the next few quarters,” they said.
Investors on Monday fretted over the poor showing of the O2C business in the second quarter. Though the consolidated profit beat estimates, gross refining margins dipped to $5.7 per barrel against $6.3 per barrel in the previous quarter and $9.3 per barrel in the same period of last year. Turnover from this segment fell to Rs 62,154 crore against Rs 97,229 crore a year ago.The RIL stock opened on a lower note at Rs 2033.50 and hit an intra-day low of Rs 1,860, a drop of almost 9.50 per cent.
It later ended at Rs 1,877.30, marking down Rs 177.05, or 8.62 per cent, over its previous close which is its biggest single-day correction since March. Market capitalisation on the BSE plunged Rs 1.20 lakh crore to Rs 12.69 lakh crore.
Though most of the brokerages have a buy call on RIL, some remain sceptical. Macquarie, which has a “under-perform” rating, has a target price of Rs 1,195 per share which implies a 42 per cent downside from Friday’s closing price of Rs 2,054.35 in the BSE. The “cautious” foreign brokerage said it did not see any economic moat particularly in retail even as RIL reported a largely expected sequential rebound in the second quarter.
Analysts said investors to the O2C business would serve as the next triggers for the stocks.
In retail, the investments by global players Silver Lake, KKR, General Atlantic, Mubadala, GIC, TPG and ADIA of Rs 37,710 crore have been along expected lines. The stock can only rally if a global strategic player which has interest in the retail business takes stake in the company.
“Upsides may come if Aramco buys into O2C at $75 billion enterprise value, valuing its stake at $60 billion, global strategic majors enter retail, and Jio-Retail get listed,” analysts at Emkay said. Emkay has a hold rating on RIL and has a 12-month target price of Rs 1,970.
Moody’s on Monday said the firm’s earnings are expected to gradually recover to pre-pandemic levels. The rating agency said RIL’s credit metrics will remain strongly positioned for its Baa2 rating because of its zero net debt status .
Meanwhille, Reliance plans to start the delayed production from the second wave of discoveries in its eastern offshore KG-D6 block in November/December, the company said.