Macquarie lowers RIL rating, maintains target at Rs 1,300

Mumbai: Macquarie has downgraded shares of oil-to-telecom conglomerate Reliance Industries to ‘underperform’ from ‘neutral’ and maintained the target price of Rs 1,300 as it believes several bullish factors have already been priced in. The brokerage said investors should stay long on Reliance Industries if they want ‘growth at any price.’ Shares of Reliance Industries ended up 0.57 per cent at Rs 1,479.7 on Wednesday. The stock is down 4.7 per cent in the last one month. Macquarie said the chemicals segment earnings is likely to have peaked in the financial year 2018-19 — the year which saw higher capacity and margins.Recently, RIL reported a 13.5 per cent rise in net profit in the December quarter. Consolidated net profit for the December quarter rose to a record Rs 11,640 crore while revenue fell 1.4 per cent to Rs 1.68 lakh crore because of weaker prices of oil and chemicals.On a standalone basis, net profit rose 7.4 per cent to Rs 9,585 crore while revenue fell 13.1 per cent to Rs 93,741 crore.Strong performance by Reliance Jio over the recent years in carving out a space for itself in the telecom space. Macquarie estimates that Jio will continue to add customers over the next one to two years, with its subscriber base reaching around 500 million.“The ramp-up of Jio has far surpassed initial expectations and the optionality is potentially large in view of the industry consolidation, structural shift in data consumption patterns, generally rising low-middle class per capita income, etc... Beyond this level, we have the pace of Jio’s customer growth declining but ARPU rising along with industry consolidation,” said Macquarie.In the last one year, the stock has gained 22 per cent, outperforming the Sensex which is up 15.7 per cent during the same period. On the retail industry front, Macquarie said competition in this space will be more intense in view of the 15-20 per cent return on assets.“Assuming the organised retail market rises to $200 billion by FY25 and Reliance captures 1/4th of this, Reliance Retail alone would be around 1.3 per cent of India’s GDP at that time... this trajectory in an Indian context would mean Reliance Retail exceeds what Alibaba delivered in China,” said Macquarie.

from Economic Times https://ift.tt/2S0oLx5