Citi maintained its buy call on the stock with an increase in its bull case target to Rs 1,923 due to higher Jio valuation and lower peak net debt. It believes that the company’s outperformance could sustain as the earnings are an at an inflection point. Among key risks to the stock are weakening in refining fundamentals and global petrochemical spreads, the research firm added.
Analysts at the firm termed the company’s March quarter performance as strong, with the standalone EBITDA being 3 percent ahead of estimates. Meanwhile, the profit after tax (PAT) was largely in line, it said. Gross refining margins of USD 11.5 per barrel
were above its estimates, it said.
On the company’s capex plans, it sees standalone capex being lesser than USD 2.5 billion in FY18. Jio’s capex in the first quarter of the fiscal will be similar to March quarter before declining sharply, it said.
Nomura maintained its buy call on the stock as well, but with an unchanged target price of Rs 1,540. The brokerage house observed that the net profit was 1-2 percent ahead of its estimates, driven by lower tax rate. It too feels that the recent outperformance of the company could sustain.
However, the earnings before interest and taxes (EBIT) and profit before tax (PBT) were below its estimates on the back of higher depreciation and lower other income. These numbers too were partly offset by lower finance costs, it added.
Going forward, it sees earnings growing ahead once Jio, petchem and refining expansion projects start to deliver. It expects consolidated EBITDA/PAT CAGR of 19 percent/15 percent, respectively over FY16-20.
Meanwhile, it observed that high capex on Jio continued during the quarter and expects similar capex in Q1 of this fiscal. The near term focus will be on addition in customers of Jio. Having said that, it feels that the large capex cycle is coming to an end.
Bank of America Merrill Lynch has downgraded the stock to neutral, but increased the target price to Rs 1,450 from Rs 1,375. The global brokerage firm observed that the firm’s March quarter net profit was 9 percent above estimates, while refining beat was led by GRM.
Analysts at the firm now have the focus on Jio’s success and the capex cycle. They believe that a further rerating on the stock is contingent on a successful Jio P&L as well as falling capex. It further added that while capex could decline, there is limited visibility on a successful Jio P&L.
The stock could find support from growth in Jio’s monthly subscribers, while weak margin, project startup hiccups and high capex were the key risks, Bank of America Merrill Lynch said.
Morgan Stanley, meanwhile, has an overweight rating on the stock as it saw upside risks from improving energy margins as well as project executions. A steady project pipeline commissioning from FY18 should reduce the risk of further capex, it added.
JPMorgan is neutral on Reliance with an increased target price of Rs 1,310 from Rs 1,240. While the lower capex in its core business was positive, Jio was the key unknown element, it said. Further extension of discounts by Jio would be negative, it added.
Rolling forward its valuation to FY19, Deutsche Bank raised its target by 10 percent to Rs 1,600. Lower downstream margins, policy vagaries were the key downside risks for stock, it said.
(Disclosure: Reliance Industries owns Network 18 that publishes Moneycontrol.com.)
Indiabulls Housing Finance
CLSA retained its buy call on Indiabulls Housing Finance with an increase in target price to Rs 1,170 from Rs 950. The brokerage firm also raised its earnings estimates by 3 percent and saw 23 percent profit CAGR over FY17-20. It observed that the earnings growth was led by topline growth and operating efficiencies. CLSA also saw growth to be led by housing loans, especially from the affordable segment in the next three years.
Mahindra and Mahindra
Credit Suisse upgraded Mahindra and Mahindra to outperform from neutral and increased the target price to Rs 1,500 from Rs 1,390, implying 20 percent potential upside. While tractor volumes were up 14 percent in March despite demonetisation, there was a potential for tractor business to surprise positively, it added.
The weakness in utility vehicle market was already factored in, it observed. The stock was currently trading at a 40 percent discount to Maruti Suzuki, which it expects to narrow.
CLSA raised the target price of the stock to Rs 4,575 from Rs 4,000. The company’s March quarter performance was in line with its estimates, it stated. A pan-India presence, growth focus and cost optimization were the key focusses, CLSA said. UltraTech was the only preferred stock in the sector, it added.
Deutsche Bank reiterated its buy call on the stock with an increase in target price to Rs 4,750 from Rs 4,560. It highlighted the company’s gain in market share during a challenging environment in the cement space. Moreover, it expects continuing reduction in costs and working capital for the company.
Morgan Stanley has an overweight rating with a target of Rs 4,690. It projected 25 percent EBITDA CAGR over FY17-19 and added that the focus on cost by the firm will aid earnings growth.
JPMorgan, meanwhile, has an overweight rating on the stock with a target of Rs 4,400. Citi, on the other hand, has a buy call on the stock with a target of Rs 4,400.