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Post Covid, RIL may emerge stronger: MS

The brokerage has reduced the share price target to Rs 1,544 from Rs 1,632.

ET Bureau|
Last Updated: Apr 09, 2020, 09.34 AM IST
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Reuters
RIL-1---Reuters
Morgan Stanley said that beyond Covid-19, RIL may emerge stronger as competitors face high debt challenges and slow investments.
Mumbai: Morgan Stanley has said that Reliance Industries’ net debt will fall even if energy and retail demand struggles for six months and asset sales are delayed, but the brokerage reduced company’s share price target to factor in a cut in estimated earnings.

Morgan Stanley also said that beyond Covid-19, RIL may emerge stronger as competitors face high debt challenges and slow investments. “RIL’s net debt would remain stable in FY21, if the Covid-19 situation were to persist for six months (our base case: three months), and recover only slowly thereafter. We estimate a $1.2-1.8 billion reduction in operating cash flow, with near zero free cash flow, if weak demand were to continue for six months. However, RIL has flexibility to prioritize its investments in FY21, and could thereby reduce cash outlay by around 25-30 per cent year-on-year,” the brokerage said.

The brokerage has reduced the share price target to Rs 1,544 from Rs 1,632. Shares of RIL closed at Rs 1,192.15 on BSE on Wednesday, down 1.2 per cent from previous close. RIL Shares have declined over 21 per cent year-to-date.

“Our analysis of RIL’s cash flows in various industry downcycles and sustaining weak demand for 2020 still projects upside, implying a lot is now priced in the stock. Hence, we lower our earnings estimates for a second time, by 10 per cent for F21, taking our total reduction to 17 per cent over the past two months, to factor in three months of challenges,” the brokerage said.
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