Good time to buy RIL shares? Recent Underperformance Makes Reliance Stock Attractive

RIL’s share price has fallen more than 2% in the last month, while the Nifty 50 has risen 11.5% in the same time period. The recent heavyweight underperformance of the Reliance Industries Ltd index follows its 165% rally between March and September. However, now trading at Rs 1,984 per share, 20% down from its 52-week high of Rs 2,369, has it corrected RIL enough for investors to start piling it up again?

Bounce on the margins of chemical chemistry

The brokerage firm Kotak Securities believes that the rebound in petrochemical margins coupled with a possible rate hike by the telecoms industry are the key catalysts that could help RIL’s share price. “We expect RIL to benefit from a strong sustained recovery in Asian margins for key chemicals in recent months from Q4 lows in calendar year 2019, which will help mitigate refining weakness even as it gradually recovers. “, Kotak Securities said in a report.

Margins on key chemicals have increased in recent months, a move that is likely to benefit RIL. Polyethylene, polypropylene and PVC spreads over naphtha have risen dramatically in recent months, reflecting a healthy rebound in demand from the packaging, consumer and healthcare segments and slower additions to capabilities. “We expect margins to improve to US $ 196 per tonne in fiscal 2022, reflecting a sustained recovery in global demand and slower additions to polymer capacity amid the weak economics of coal conversion projects. in olefins, ”says the report. Refining margins are expected to gradually recover.

Rate increase to help Jio

After having completed the sale of the stake in Jio Platforms to global investors such as Facebook, Google, PIF, among others, the next step that will help RIL’s telecommunications and digital services division will be a rate increase. “In our opinion, Jio can welcome an increase in telecom rates by the industry, in whole or at least in part, in order to improve its own business economy, as possible sources of income from other initiatives digital can take time to improve, “added Kotak Securities. .

Jio has been the biggest revenue generator despite the smaller increase in average revenue per user (ARPU) after last year’s rate hike. In the previous quarter, Jio’s APRU reached Rs 145 per month, while Bharti Airtel had an ARPU of Rs 162.2 per month. However, the net subscriber addition was healthier for Jio along with higher revenue.

“RIL’s strong 32% underperformance against broader markets over the past two months offers an opportunity to accumulate. A short-term improvement in the outlook for O2C and the telecommunications business may lead to a re-rating of the shares, which can also act as a hedge against any weakness in the broader markets, ”the brokerage firm said. With an ‘Add’ rating on RIL, Kotak Securities has a fair value of Rs 2,150 per share.

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