Reliance Industries shares fall for second straight day post 44th AGM; should you buy the dip?

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Shares of Reliance Industries (RIL) declined for the second straight session on Friday post the company’s annual general meeting (AGM) on June 24. After falling over 2% on Thursday, shares of the company traded 2.41% lower at Rs 2,101 on June 25 at around 11.50 am (IST). On the other hand, the benchmark BSE Sensex was up 65 points, or 0.13%, at 52,764 at around the same time.

Going with market analysts, the company’s Rs 75,000 crore capex plan in the next three years in the New Energy business may defer free cash flow generation. Hence, it may pose a near term overhang till there is more clarity on the potential return profile.

Should you buy the dip?

While retaining a bullish view on RIL, JM Financial said, “We await more clarity; hence we keep our estimates unchanged. We maintain ‘Buy’ on RIL with a target price of Rs 2,500 per share, given its industry leading capabilities across businesses, and expectation of strong 17-18% EPS CAGR over the next 3-5 years.”

The company on Thursday announced capex plan of Rs 60,000 crore in the next 3 years to pivot into clean energy space which includes building an integrated solar photovoltaic module factory, advanced energy storage battery factory for the storage of intermittent energy, electrolyser factory for the production of green hydrogen and a fuel cell factory for converting hydrogen into motive and stationary power.

Further, it will invest another Rs 15,000 crore in the value chain, partnerships and future technologies.

V K Vijayakumar, chief investment strategist, Geojit Financial Services said, “RIL’s big push for a transformational clean energy ecosystem that will “transform India from a major importer of fossil fuels to an exporter of clean energy” is a potential game-changing strategy. RIL’s vision to make clean energy a truly global business is good news not only for the planet but for shareholders too.”

On the other hand, HDFC Securities has an ‘Add’ rating on Reliance Industries with a price target of Rs 2280.

“Our ‘Add’ rating on RIL is premised on recovery in the O2C businesses, continued EBITDA growth in the digital business, driven by improvement in Arpu, subscriber addition and newer revenue streams and potential for further value unlocking in the digital and retail businesses,” the brokerage said.

Meanwhile, RIL appointed the chairman of Saudi Aramco, HE Yasir Al-Rumayyan to its board as an independent director. This development indicates a step forward for the RIL-Saudi Aramco deal.

“RIL’s chairman indicated that the partnership should be formalised this year. The deal, announced in FY19, valued RIL’s O2C business at an EV of $75 billion. This valuation should increase our SOTP for the stock by Rs 285 per share, taking it to Rs 2,565,” HDFC Securities said.