CLSA fears EPS downgrades for RIL but retains outperform

CLSA fears EPS downgrades for Reliance Industries as about 70% of 84% two yr EPS progress comes from the unsure telecom tariff hikes and refining margin rebound.

The brokerage stated it’s retaining outperform score on the stock regardless of elevated expectations and earnings being an overhang because the inventory holds long run promise.

“36% of RIL’s two-year EPS progress of 84% is contributed by our prediction of a ten% annual telecom tariff hike in Apr-21 and once more in Apr-22. One other 32% comes from assumption of a gross refining margin rebound from US$6.8/barrel in FY21 to US$9 in FY22 and an extra US$11 in FY23,” stated CLSA. “These are unsure and will pose earnings downgrades danger for RIL and thereby Nifty via 2021,” stated CLSA.

The brokerage stated Reliance Industries is prone to take steps to strengthen e-commerce and expertise choices on this yr however buyers could not obtain immediate gratification on their optimism after a robust 2020.

Inventory market listings of Jio or retail could not occur this yr and any progress on a stake sale in downstream enterprise could not drive enormous worth accretion from present ranges, stated CLSA.

The inventory gained 128.7% from its calendar yr low of Rs 867.82 in March 2020 to finish the yr 2020 with a achieve of 32.2%. The good points have been pushed by stake monetisation by the corporate throughout its retail and telecom companies.

“In 2021 we count on steps to enhance omnichannel choices by way of JioMart, strengthening expertise technique by showcasing 5G readiness, and enhancing content material apps,” stated CLSA. “Seemingly ramp-up in broadband, rising telecom dominance, and a gasoline manufacturing pickup is probably not instant surprises however may increase long-term promise,” it added.

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