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Reliance Industries gains 5% as Morgan Stanley maintains bullish stance

BusinessToday.In     September 24, 2019

Shares of Reliance Industries (RIL) rallied nearly 5% to the month's high of Rs 1,298 on the BSE on Tuesday after foreign brokerage Morgan Stanley maintained its 'overweight' stance on the company's stock and revised target price of RIL to Rs 1,469 from Rs 1,369 per share earlier. The brokerage maintained its bullish outlook on the stock, quoting, "Better refining margins, lower taxes and cheaper gas feedstock costs should de-risk outlook".

As per brokerage firms, Jio and the company's retail operations will be the biggest beneficiaries of the cut in the corporate tax rate announced by the government.

RIL was the top gainer on the S&P BSE Sensex and Nifty 50 in the early trading hours. RIL stock rose almost 5% to the intraday high of Rs 1298.55, also its month's high, after rising 4.84% against the last close of Rs 1238.65 on the BSE.

The 'A' group stock with a face value of Rs 10 has moved above its 150 day and 200-day simple moving average today. The RIL stock was already trading above its 30 and 50-day SMA. Overall, 7.7 lakh shares and 119 lakh shares are currently changing hands on BSE and NSE, both above 5, 10, and 30-day average volume traded.

The brokerage also expects the recovery in energy earnings after the trough (both refining and petrochemicals) seen in Q1FY20. It sees an earnings CAGR of 17 per cent over FY19-21 and raised earnings forecasts by 7 per cent and 12 per cent for FY20/F21.

"This, combined with a reduction of balance sheet leverage, should de-risk earnings growth and increase investor confidence on the 17 per cent earnings CAGR seen for F2019-22e, which is amongst the top quartile vs its regional energy and telecom peers", Morgan Stanley said.

"We believe the target of zero net debt by F2021 will help lower investor concerns about debt (which has increased steadily over the past seven years)," the report said.

"As we approach IMO implementation on January 1, 2020, diesel margins have risen 9 per cent YTD since end-2018 and gasoline margins have improved as refineries try to maximize diesel output by lowering gasoline output. As well, cheaper gas prices should keep RIL's operating cost inflation low. We also lower our tax rate forecasts by 400bp and for F2020 and F2021 to reflect the new corporate tax rate of 25.2 per cent," the report further stated.

As of 1345 IST, shares of RIL were quoting, Rs 1290, 4.16% higher on BSE and NSE, respectively.

By Rupa Burman Roy

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