Rs 1 lakh crore gone! Ambani slips 3 places on global rich list: What spooked RIL stock?

Rs 1 lakh crore gone! Ambani slips 3 places on global rich list: What spooked RIL stock?

• By Staff Writer

Rs 1 lakh crore gone! Ambani slips 3 places on global rich list: What spooked RIL stock?

MUMBAI: Shares of oil-to-telecom conglomerate Reliance NSE -0.18 % Industries (RIL) were hammered in trading on Monday after the company on Friday posted a 15 per cent year-on-year (YoY) drop in September quarter net profit, as the pandemic hit sales of most of its products. The index heavyweight tumbled 8.62 per cent to Rs 1,877, while partly-paid shares of the company tanked 10 per cent to hit the lower circuit limit and close at Rs 1,066. The decline eroded more than Rs 1 lakh crore from the  company’s market capitalization.

The sharp drop in the stock shaved off $6.8 billion from Mukesh Ambani's net worth, and pushed him down from sixth rank on the world's rich list to ninth place, with his net worth down at $71.5 billion, according to Forbes Real Times Billionaires List.

Earlier in the day, Macquarie came up with an “underperform” rating for the stock, and maintained it target price at Rs 1,320. Even after Monday’s steep selloff, this would imply a downside of 30 per cent.

“With a one-two year view, we agree with India’s long-term digital opportunity, but we continue to see meaningful execution challenges and no moat for Reliance particularly in retail. Our earnings and cash flow estimates are meaningful below consensus, and the stock is trading at our blue sky valuation," Macquarie analysts said in a note.

The brokerage forecasts RIL’s FY22 EPS to grow 20 per cent to Rs73 per share, but pointed out that this was 23 per cent below consensus, and explained that it views a slower recovery in RIL’s refining and chemical margins, slower pace of Arpu growth, lower retail margins as JioMart scales up, high competition in retail, higher working capital requirement for retail, higher capex for Jio and retail, and higher minority interests.

Shrikant Chouhan of Kotak Securities said Reliance is in a corrective pattern that should end at Rs 1,810/1,790 levels. "We saw these levels in July, 2020. In the last leg of corrective pattern, the stock fell rapidly. We are witnessing a similar correction. Buying is advisable between the same with a final stop loss at Rs 1,750. For medium-term investors, it would be an opportunity to accumulate between Rs 1,850 and Rs 1,650 as the risk-reward ratio to fair price consensus price target (Rs 2,3000/2,400) is quite decent," he said.

After Monday's sharp fall, the stock is off 20.7 per cent from its record high of Rs 2,368 hit on September 16, but up 116 per cent from its March low.

The rapid surge in stock price until September had become a headache for domestic mutual funds, as regulatory norms do not allow actively-managed funds to own more than 10 per cent of a single stock, implying they could not add more RIL shares to their schemes.

“RIL is over-owned by most funds. The index heavyweight is one of the few frontline stocks that saw continued momentum. Fund managers are now compelled to restrict RIL holdings in their schemes," said Deven Choksey, Group Managing Director at KR Choksey Investment Managers.