RIL Stocks To Further Surpass Nifty Index?
#IndusEquityAdvisors' Sushil Choksey and #MOFSL's Chandan Taparia assess #RIL's stock performance and the road ahead for the heavyweight. #BQLive
Transcript
00:00 Hello and welcome to BQ Primer. Very good morning to all the viewers. I'm Heeral Dadia.
00:05 One stock that has been in focus is Reliance Industries. It's interesting to see how one
00:12 of the most valuable companies till yesterday fell for a fifth consecutive session and it's
00:19 actually put the company into oversold territory for the first time since March 2023. And this
00:27 is from a valuation perspective. Now, whether we will see a potential rebound from here
00:34 and what is in store for the company from a technical perspective and whether the fundamentals
00:40 actually support the technical levels from here on. Joining us on the show to discuss
00:45 both aspects is Mr. Sushil Choksi, CEO at Indus Equity Advisors, as well as Chandan
00:52 Thaparia, Head Technical and Derivative Research at Motilal Oswal. Welcome to the show, gentlemen.
00:58 Thanks for having me on this one.
01:02 Always a pleasure. Let's first start from a technical perspective and then try and support
01:06 it with what Mr. Choksi has to say from a fundamental side. Chandan, overall, from the
01:11 way the stock has performed in the last couple of weeks, do you think Reliance is now in
01:18 an oversold zone because of the selling pressure that we've already seen?
01:22 Thank you, Ira. So if I look at the price behavior of Reliance industry, in the last
01:31 two months, we have seen correction from higher levels. In the month of July, it made high
01:35 near to 2630 and now it's hovering near to 2350 zone. We have seen correction in the
01:42 last two months and before that, it witnessed good run up from the mid of March to July.
01:50 So it rallied from 1980 to 2630 and after that it witnessed a correction of more than
01:55 33%. That is a key redressment zone also. But on weekly setup, we have noticed that
02:02 it is making lower top, lower bottom and follow up is totally missing and trading below all
02:06 the moving averages. So because of such setup, in daily and the weekly chart, upside is being
02:11 kept. Even if you look at in the series, the stock is down by around 2.5%, trading lower
02:17 than its holding average. We have seen call writing activity at 2400 strike. But yes,
02:22 if you look at the daily chart, in the recent weakness, now it is oversold territory and
02:27 it is one of the heaviest counter in the broader market. So if I combine all the chart setup,
02:33 even after the weakness, it seems that now put writing activity is there and because
02:38 of that 2300 could act as support. So now after finding the support near to 2300, the
02:44 question is do you see big momentum that we don't believe as of now. But yes, with the
02:49 support of 2300, Reliance can at least bounce to us 2420 kind of level. So I will play the
02:55 range in between 2300 to 2420 looking for some bottom facing approach after the beaten
03:02 down and oversold territory of the counter.
03:05 So clearly, you know, from a technical perspective, yes, the stock is in oversold zone. 2300
03:10 is the support level that we are looking at. But a follow up to that Chandan is will these
03:15 support levels actually hold?
03:19 So as of now it seems. But let me tell you that trend is not strong as of now. And that
03:25 is the reason the support is going to be respected. But follow up is missing or follow up will
03:30 be kept. Even if I look at the put writing activity or rollover course, I believe as
03:34 of now the 2300 is going to hold. If you ask me conviction, have less conviction. But chart
03:40 and data set up as of now indicating the hold of 2300 as of now in the Reliance industry.
03:47 Right. Mr. Choksi, let me come to you from a fundamental perspective. From here on, you
03:53 know, since the time the demerger has happened with regards to Jio, a lot of chitter chatter
03:59 in terms of where is the value creation, value unlocking going to come in. We're talking
04:04 of Reliance retail, we're talking of Jio, the financial services part of it. OMC is
04:10 the business is absolutely set. What's the sense that you pick up? You know, what are
04:14 your fundamental levers actually telling you?
04:17 Ma'am, first thing to start Mukesh Ambani's AGM speech. He indicated what we have not
04:25 achieved in last 45 years. What they've achieved in last 45, they would like to replicate in
04:30 next 10. Does it indicate a great start for the next 10 years? Sure. What are the enablers
04:38 in place? Jio 5G is on a virtue of being totally rolled out by this year. They've already raised
04:47 air fiber, the handset. Going to retail, the expansion mode continues and the best of global
04:55 brands are coming to India. The footprint of 18,000 plus stores is likely to get to
05:00 20,000 by this year end. And that growth path may continue for another two, three years.
05:06 And the best of PE money or sovereign funds are pouring in dollars into the company, whether
05:12 it was in COVID or recent also two transactions have taken place. Going to oil and chemical,
05:19 mining margins and the throughput both seems to be at reasonably on a 5 or 10 year average
05:26 at a high note. On top of it, last week Russia has banned diesel exports to Europe, which
05:34 means the opportunity for Indian refiners to export diesel is going to come up and reliance
05:38 with almost 76 to 80 million barrels of crude being processed at Jamnagar. The throughput
05:47 in the first quarter is indicated that the margins on oil to chemical division led by
05:53 refining margins supported by festive season where automobiles, consumer durable goods,
05:59 household consumption, plastic will definitely be used and textile fabric with cotton price
06:05 on the upward swing also will have a support. So on the overall scheme of things, I don't
06:12 see why reliance should not achieve 1,75,000, 1,80,000 crores of EBITDA for the current
06:18 financial year and the growth path led by new divisions of hydrogen and solar, which
06:26 will start contributing in a small way in 2025 and 26 should be the year where they
06:32 will emerge as big winners because India is looking at green energy in a big way and reliance
06:39 is looking at integrated play starting from policy to module. No doubt today module prices
06:45 are at the rock bottom on a global basis, but because reliance is integrating end to
06:50 end and converting to hydrogen, that play would become important and they are looking
06:55 at capital technology because they have acquired REC 2.5, 3 years back for $700 million. Now
07:02 the reason reliance is looking attractive is if India's GDP, which is at 3.2, 3.3 trillion
07:08 and heading to 5 and maybe by 30 at 7, 8 trillion or 10 trillion, it's all debate on whether
07:16 we achieve at 6%, 7%, 8% GDP. 7% seems very feasible today and with Indian bond JP Morgan
07:27 index inclusion, which would make most of the large corporate capex reasonably priced
07:33 in terms of borrowing costs. If reliance decides to expand year on year for the capex of 2
07:39 lakh crores, I don't see them raising a reasonable cost money at the same time they cash to own
07:46 support. So in a way people would expect that the debt would go down, but if reliance decides
07:51 to expand at a faster pace than where they stand on all the divisions, they will have
07:56 money. Adding on this, Jio will have a bumper quarter led by cricket and movies. At the
08:05 same time, I think the ARPU, which was around 180 rupees should be heading towards 190 by
08:11 the year end. Bharti has aspirations to be higher than 200 and that's definitely a play,
08:16 but reliance is looking at a larger capture. One needs to say how Jio's new airfabra and
08:21 other home plans are working and that should be visible in a quarter to go by. So if you're
08:26 asking me the weakness or any further weakness from here, post Jio financials de-merger seems
08:34 to be an opportunity if you're looking at a play and second thing is people who have
08:39 aspirations for growth with the 12-24 month outlook, reliance may have two more listed
08:45 companies in terms of retail and Jio as a separate arm other than the main petrochemical
08:51 division combined with solar and hydro.
08:53 Right. Mr Choksi, one question I have on that is clearly, you know, once the de-merger was
08:59 done and that Qatar fund has come in, in terms of reliance retail, do you think that is something
09:07 which will actually help reliance industries move the needle from a valuation perspective?
09:13 Because clearly you have seen brokerages who've come out, say probably at a value of around
09:19 1300 to 1350 for a reliance retail, right? Or is it that that is something which is already
09:27 priced in and that's not something which will really, you know, move the needle for the
09:31 stock because it's the endorsement of the obvious?
09:35 I think that 100 billion value which Qatar fund has invested 1% stake at, whether they
09:42 move to 125 within a year or next two years, one needs to see based on the performance
09:47 they've achieved on the higher end retail market and the footprints they've created.
09:52 I'm sure reliance is on expansion mode covering the entire India and then bringing in the
09:58 best brands, how they capture and move from that 7% margin towards 8 to 9% margin or the
10:04 top line growth would decide the value where it stands today.
10:08 Today, a lot of people may debate that they are already diluting by selling partial stake
10:14 for expansion and infusing money, but for the size of the country and a format which
10:20 you need to create, there are few players who can compete with each other and reliance
10:24 is one among which is making the entire supply chain to distribution capability including
10:29 the store footprint.
10:30 So, I think it's a matter of time that one needs to take a three-year view and not take
10:34 one-year view because a lot of new divisions have started from cosmetics to many other
10:38 things.
10:39 One needs to see what is going to be domestic consumption pattern based on the current trends
10:44 and thus this trend only remain in tier 1, tier 2, tier 3 cities or it also moves into
10:51 interiors.
10:52 So, how reliance combines with their petrol pump retail strategy, going to interiors of
10:58 India or a supply chain, what needs to watch out.
11:02 I think it's a play with a three-year, two-year outlook and not look at because I'm looking
11:05 at more of listing gains when actually all the three verticals are separately listed
11:10 and everybody has a choice to buy what they like whether it's retail, telecom or it's
11:15 the oil to chemical division.
11:18 Right.
11:19 In fact, you know taking that into consideration then Chandan coming to you, you know we are
11:24 saying that yes there is support at 2300.
11:29 If an investor looks to buy at current levels and we do see a good recovery or say probably
11:34 a relief rally that does come in, where do you see the resistance number one and at what
11:39 intervals would you be tracking that?
11:41 Yeah, so like with support of 2300, the first interval and hurdle will be 2400 to 2420.
11:48 So that will be there.
11:50 So this is for immediate point of view.
11:51 If you ask me positional point of view, then I need some sort of time and price consolidation
11:56 in the counter.
11:58 I think if it consolidated near to 2400 to 2420, then only it will start the next leg
12:03 of rally which can positionally take it to our 2600 level.
12:06 But as of now, I look at 2300 to 2400 or 2420 zone to play with Reliance and this is going
12:13 to work as a weekly range or going to work for two weeks kind of range for the Reliance
12:17 industry.
12:18 Right.
12:19 In fact, Mr. Choksi, coming to you as well, I was just looking at a Bloomberg estimate.
12:25 Around 31 analysts out of 39 tracking it still have a buy recommendation.
12:31 Five have hold and three have a sell rating.
12:34 Now the average target is implying say 19 to 20 percent upside from the current market
12:39 price from a 12 month perspective.
12:42 Is this something that you would go with as well from the current market price?
12:47 I think post demerger, valuing Reliance industries three division at 28 to 3000 rupees is definitely
12:56 possible.
12:57 It depends on what guidance you get for next year.
13:00 And that will be visible by the December quarter result because growth and the new division
13:06 emerging as productivity addition for the following year would direct because green
13:12 energy, which is attracting big lot of money and Reliance's vision on that would decide
13:18 whether that division will give how much of value addition to the current existing business.
13:23 Today, people may be valuing at 100 rupees a share, maybe 200 rupees a share.
13:28 Then it will be a winner and add further value to retail and geo and oil to chemical that
13:32 needs to be seen.
13:34 So in today's market, being a largest market cap company, a 2350 stock being trading at
13:40 2800 is reasonable because the market may not move 20 percent on 50 in the next one
13:45 year.
13:46 Right.
13:47 And Chandan, would you be looking at a 28, 2900 from a longer term perspective with regards
13:52 to Reliance industries?
13:53 For me, it's quite early because if you look at the price, we were until the chart
13:59 set up doesn't change, it would be very tough for me to comment on such bigger number.
14:03 But yes, as I said, that if you look at the medium term point of view, then hold of 2400,
14:08 2420 can open the upside to 2600 only as of now, because I understand it would be very
14:13 tough to generate alpha for the counter.
14:16 And if you look at the Nifty, it can move higher.
14:18 It can head to us 20,500 and something.
14:21 But yes, comparatively, Reliance will underperform.
14:24 I can only look at 2600.
14:27 So as of now, if you are looking at the medium or positional terms point of view in the Reliance
14:32 industry.
14:33 Right.
14:34 So again, good conviction coming in there.
14:36 Thank you, Mr. Choksi.
14:37 Thank you, Chandan, for joining us on the show and sharing the views.
14:40 And that gives you a holistic picture that, you know, fundamentals do remain intact, as
14:44 Mr. Choksi was indicating as well, with the kind of unlocking that we're looking at.
14:50 And from a technical perspective, short to medium term is what Chandan has looked at.
14:54 Longer term still looks difficult, bases the charts that we're seeing so far.
14:59 So I think slowly, steadily, we'll come to see whether 2800, 2900, what the consensus
15:07 estimates are looking at from a one year target can be achieved or not.
15:12 That's all that we have on the session.
15:13 Thanks for watching.
15:14 Be Keeper.
15:14 I'll be Keeper.
15:24 I'll be Keeper.