Is party over for Mukesh Ambani-led Reliance Industries stock? This is what experts think

While both Sensex and Nifty 50 were enjoying bullish market sentiments on Friday’s trading session, Mukesh Ambani’s Reliance Industries had a dull day. On BSE, the share finished at Rs 1,363.05 per piece down by Rs 2.50 or 0.18%. Overall, the stock gained by 1% on the index after it touched an intraday high of Rs 1,376 per piece. It seems like that the party is over for RIL’s rally! The stock has been performing good since the start of March as it has given over 12% returns during this period. In fact, so far in 2019, RIL share price have rocketed by nearly 24%. By the end of 2018, the stock was just trading near Rs 1,121-mark. But looks like RIL is now becoming from best bet to an avoiding stock. Analysts at Kotak Institutional Equities have given a sell call on RIL. 

Tarun Lakhotia, Rohit Chordia and Hemang Khanna analysts at Kotak Institutional Equities said, “. RIL’s headline numbers from retail segment have surprised positively over the past four quarters. However, a significant proportion of growth in retail revenues has been boosted by low-margin Jio recharges and JioPhone sales, which along with fuel sales contributed more than half of revenues.”

The trio explained that, on our view, the rising cost of the operating lease for JioPhone in sync with the increasing population of devices may prevent any material expansion in retail margins in the near term unless (1) app-hosting charges on Kai-OS and (2) advertisement revenues pickup substantially. 

They noted that,  core retail margins declined by ~50 bps qoq in 2QFY19 despite a sharp jump in retail revenues, perhaps attributed to the likely increase in device lease rental cost to Rs 6.7 billion from Rs 1.4 billion in 1QFY19; 4QFY19 will be marked by a further increase in device lease rentals to Rs 11.5 billion, based on the installment payment schedule for OPC Asset Solutions. 

Hence, analysts at Kotak said, “ likely increase in lease cost pertaining to JioPhone may rule out a material expansion in margins in the near term, in our view. Reiterate SELL with the stock pricing optimism across segments.”