The Reliance Industries (RIL) scrip rose 2% to its highest level in more than two weeks after the company's first quarter earnings surpassed Street estimates, prompting many brokerages to revise their earnings estimates higher.
In contrast to the 0.3% gain on Sensex, the RIL's scrip ended at R997.35 a share on Monday, up R20.65 or 2.11%, on BSE as the company clocked a 13.7% growth in consolidated net profit in the June quarter to R5,957 crore, making it the first privately-held listed company to post a net profit of nearly $1 billion.
Nearly 43.1-lakh shares were traded in the cash segment on BSE and NSE, up 1.38 times the five-day average volume and 1.15 times the 30-day average on the both the exchanges, data show.
Many domestic and foreign brokerages are making upward revision to their earning estimates based on Q1 results as the company has lined-up an astonishing capital expenditure of R1.8 lakh crore in key businesses like petrochemicals, oil & gas, telecom and retail.
For instance, Kotak Institutional Equities (KIE) Research has revised RIL's FY15-17e EPS estimates (standalone) higher to R73.6, (+3.3%), R74.7 (+2.2%) and R89.8 (+0.8%).
“We raise our EPS estimates to reflect Q1FY15 results, lower interest and DD&A expenses and other minor changes,” said KIE in its research note.
Brokerages expect the stock to give phenomenal returns in the next two-three years, given the inexpensive valuations. The stock trades between 11.5-12.7 times one-year forward earnings as against 15-16x to that of Sensex, according to estimates of various brokerages.
Major brokerages such as Nomura, CLSA, KIE, UBS, Morgan Stanley, Motilal Oswal, JP Morgan, Credit Suisse, Bank of America Merrill Lynch (BofA ML), and Jefferies among others have retained their recommendations. Swiss investment baking firm UBS has assigned a 12-month target price of R1,400 a share, while CLSA expects the stock to double in the next three-years.
Analysts also said that the decision on gas pricing and a gas price hike, if announced, will be a big trigger for energy companies, including RIL.
Due to the overhang of gas pricing and declining output in the KG-D6 gas production, the stock has given returns of just 11-12% in the last three years compared with 40% returns of Sensex. Also RIL shares dropped to sixth position in the list of most actively traded securities from number one position two years ago.