Reliance Industries dips to 52-week low: What's behind 5% drop in one week?

Shares of Reliance Industries (RIL) hit a 52-week low of Rs 1,210.15, falling 1.7 per cent on the BSE in Friday’s intra-day trade, extending its previous day’s nearly 2 per cent decline. In one week, the stock price of the country’s most valuable company in terms of market capitalisation (market cap) has declined 5 per cent.

RIL has seen market cap erosion of Rs 85,525 crore during the week. In comparison, the BSE Sensex has declined 4.4 per cent during the same period. RIL has declined 24 per cent from its record high level of Rs 1,608.95 (adjusted to bonus) touched on July 8, 2024.

Analysts believe RIL’s underperformance was driven by higher capex in Retail business and Reliance Jio as well as a lack of free cash flow (FCF) generation. However, Motilal Oswal Financial Services in its report dated December 9, said that the capex has likely peaked and expect RIL to generate around Rs 1 trillion cumulative FCF over FY24-27. The brokerage firm believes the risk-reward is compelling as RIL is currently trading close to its bearcase valuations (1:10 risk-reward skew).

Moreover, analysts at JM Financial Institutional Securities believe the recent weakness in RIL’s share price seems primarily due to 5-6 per cent downgrade in consensus FY25 earnings before interest, tax, depreciation and amortisation (Ebitda) estimate. This was driven by weak H1FY25 earnings as oil to chemicals(O2C) earnings was hit on account of weakness in GRM in H1FY25 amidst continued sluggish petchem margin; and retail business Ebitda moderating sharply in the last 3 quarters. The limited clarity on Jio’s listing timeline added to the weakness, the brokerage firm said.

However, analysts at JM Financial reiterated their 'Buy' rating on RIL as they expect its net debt to decline gradually as capex will not only moderate but, importantly, also be fully funded by a gradual increase in internal cash generation. RIL’s guidance on keeping reported net debt to Ebitda below 1x (0.75x at end-2QFY25) also gives comfort. Clarity on the potential timeline and valuation of Jio’s listing could be a possible near to medium term trigger, the brokerage firm said.

RIL stock has cooled off from its all-time highs as a delay in the possible IPOs of Jio and/or Retail led to reduced excitement towards the stock. Slowing growth in the retail business has been another negative. While improvements in Jio and Retail remain the centre of attention, the start of new energy projects is a potential catalyst that the stock is possibly ignoring, said analysts at CLSA on November 13, 2024 in a report.