April 27: In what’s a rare occurance, an equity research house has downgraded ‘RIL’ — as the Reliance Industries stock is registered on the exchanges. In a new report following the FY11 results, Goldman Sachs has cut RIL’s rating from ‘buy’ to ‘neutral’ in a note. On Wednesday, RIL’s stock price closed at `985.15 on the Bombay Stock Exchange, down 1.56 per cent, after it had touched a one month low earlier during the day.
Goldman has cited ‘lack of clarity on its sustainable growth drivers’ as the key concern. This is an issue that has concerned analysts for a while — from the time the company completed the KG-D6 gas production project, it hasn’t had any large growth projects on the anvil. Traditionally, RIL stock has always received a premium from investors because of its strong growth rate. The absence of growth avenues hasn’t gone un-noticed by investors either. In the past 12 months, RIL’s stock has fallen by 7.2 per cent against a 10.7 per cent rise in the Sensex.
In its note, the brokerage says that its positive stance on RIL was based on strong earnings in the cyclical businesses — refining and petrochemicals. However, earnings from refining have also been below estimates in the latest results. There is also concern about the lack of clarity on D6 production levels and slow progress in expanding the company’s exploration acreage.