dependency industries | ril stock price: Why Reliance is underperforming and what can drive the stock higher? Responses from Harshvardhan Dole of IIFL Securities | Techno Glob


“Reliance gave no clear timeline in terms of retail IPOs as well as Jio. Nor was there a dramatic roadmap for the green energy sector and how which the company would like to unlock value for minority shareholders and this may still be ongoing on how the stock has underperformed. In my opinion, the company needs to be given time. These are not decisions that have to be played for the gallery,” says
Harshvardhan Dolevice-president,

Why did we see this underperformance compared to the rest of the market?

In my view, the underperformance is largely due to two things – one the constant policy flip-flop on Reliance’s oil and gas business which has somewhat hurt earnings growth and which is the most important factor.

We’ve seen that despite refining margins globally at multi-year highs, Reliance’s first quarter numbers haven’t caught up to that and that’s partly because of the expected threat of withholding tax. or essentially the exceptional tax that the government had to impose. The same will also play out in the second quarter.

Secondly, two other companies – Jio and Retail – are stable businesses and each quarter they will continue to deliver and to that extent, overall, they are present in the earnings estimates as well as the SOTP. So the surprise that could have led to the stock outperforming, that catalyst was missing in the last few months, for which the stock underperformed.

But that said, Reliance is a stock that should be present in the portfolio as Oil & Gas will continue to generate tons of cash and the other two businesses of Jio and Retail will continue to grow on a quarterly basis. So it’s a combination of stable cash flow and secular growth from both B2C businesses and we continue to like the stock.

While there are many catalysts for upside triggers, let’s focus on energy and refining in particular as there has been a lot of volatility with regards to geopolitical issues and export duties. The segment seems to have peaked and New Energy is an entirely new area and the risk of execution persists here. Are these concerns valid?

The new energy sector is a whole new animal. So far supply chains have likely been disrupted and big companies are also trying to realign their value chains. Reliance is trying to build a vertically integrated business model for the energy chain.

It’s a daunting task, but they weave a strategy to ensure that as the business begins to deliver, earnings volatility should be one of the least. This is not something that will grow overnight, it will take its time and to that extent investors should be patient and give them time to build for the business to be as robust as seen in the B2B as well as the B2C segments.

You’ve talked about retail and telecommunications and them as key growth drivers, but there’s no clear timeline with respect to IPO as some sort of overhang or concern?

Partly yes and that’s what we wrote in our last note that investors were slightly disappointed that there was no clear timeline in terms of retail IPOs as well as Jio. There was also no spectacular roadmap for the green energy sector and how the company would like to unlock value for minority shareholders and this is perhaps still ongoing on how the stock underperformed.

In my opinion, the company must be given time. These are not decisions that should be played for the gallery and at most, management will take a call that takes into account several factors and shareholder value will be one of them.


You have already pointed out that you are positive on the stock and that valuations currently look attractive. What is the 12-month price target?


According to our release note, we are looking at Reliance SOTP which is close to around Rs 2,900 and does not assign material value to the green power sector as we move away from the street.

We would like to see action on the ground and at least on the solar side, some traction to cross, after which we will adjust our numbers. Most other valuations are broadly in line with the consensus that nearly one-third, one-third, one-third of value is attributed to retail O2C and essentially Jio. We are not so concerned about leverage on the books or future capital expenditures as cash flow will remain healthy and RIL has a balance sheet to further grow and complete these projects.



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