Reliance shares continue to fall; how do analysts view its future plans?

The stock fell for the second consecutive day on Friday

ITDC INDIA EPRESS/ITDC NEWS R Reliance Industries’ shares fell for the second consecutive day on Friday; the stock was down more than 2.5 per cent in the morning trade. The reaction from the market suggests that investors were perhaps disappointed with the future roadmap that RIL chairman Mukesh Ambani announced at its Annual General Meeting on Thursday. This included a massive push in renewable energy, an ultra-affordable Android smartphone, and roping in the chairman of Saudi oil giant Aramco on RIL’s board, which Ambani has said will be the start of internationalisation of RIL.

But the sell off in RIL shares could also be the case of profit-booking after the run-up it had; it was up over 12 per cent in the past month till June 23.

The stock was still trading 2.3 per cent lower at Rs 2,103.75 in noon trade on Friday, even as the broader BSE Sensex was up 0.2 per cent or 100 points.

Analysts though largely remain bullish on RIL’s future prospects, although there are some uncertainties that may loom over the investors’ minds in the near-term.

In what was the biggest announcement in the AGM, Ambani said RIL will invest Rs 75,000 crore in a new-energy business, which will include four giga factories to manufacture critical components of the renewable energy ecosystem. A project management and construction division will be set up, too, and so will be a project finance division.

“The Rs 750 billion capex plan in next 3 years in new energy business may defer free cash flow generation; hence, may pose a near-term overhang till there is more clarity on potential return profile,” said Dayanand Mittal and Vishnu KG, analysts at JM Financial Institutional Securities.

Another potential winner for RIL is the ultra-affordable smartphone Jio is developing in partnership with Google. The tech giant had picked up a 7.7 per cent stake in Jio Platforms last year. The JioPhone Next, which will be powered by a highly optimised version of the Android operating system developed for the Indian market, is to go on sale from September 10. But with pricing details, build quality, and specifications still unknown, whether it can be the game-changer and propel a big shift from 2G feature phone users to this ultra-affordable smartphone as it is touted to, needs to be seen.

Analysts at Emkay Global Financial Services say that factoring in Jio’s aggression and underlying fundamentals of being affordable, the price point should be at a steep discount to current handset average selling prices. But pricing alone will not determine its success. 

“The key for JioPhone Next success would be handset price/bundled services (similar to Jio Phone 1), along with product features as various surveys suggest that consumer buying behaviour for smartphones is influenced by camera, battery life, 5G capabilities, etc,” the Emkay analysts said.