'Buy 2, Get 3: Kotak Equities

NEW DELHI: "Buy 2, get 3" is the word from Kotak Institutional Equities as it reckons that the sharp correction in Reliance Industries Limited (RIL) amid market upheaval offers an excellent opportunity to buy the stock, with the stock pricing in only two out of the three large and robust business segments.

According to a research by Kotak Institutional Equities, the market's knee-jerk reaction on lower-oil-price-led-concerns on the transaction with Saudi Aramco seems unfounded, with strategic downstream access becoming more crucial for latter; delays possible in payout.

Higher crude discounts, weaker Rupee and potential hike in ARPUs may mitigate lower downstream margins, it said.

The report notes that the sharp correction to pre-AGM levels ignores several positive developments since then.

"We believe the sharp 29% correction in RIL over the past three months presents an opportunity to BUY as the stock has adequately factored weakness in downstream margins and ruled out deleveraging post market's knee-jerk reaction on lower-oil-price-led-concerns on the O2C transaction with Saudi Aramco, while ignoring the favorable developments in telecom business", it said.

The stock has come back to pre-AGM levels wherein the leverage-related concerns were high, capex run-rate was elevated and visibility of any improvement in telecom economics was not imminent.

Since then, the report says RIL has benefited from meaningful hike in telecom tariffs amid weaker balance sheet of competition post SC judgment on AGR, commencement of FCF generation with OCF exceeding a declining quarterly capex in 3QFY20, cut in corporate tax rates and sustained growth in retail business; lower downstream margins has been the only meaningful negative development, partly mitigated by a weaker rupee. (IANS) 

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