Jefferies anticipates stiff hurdles for Reliance Industries Ltd.'s stock going ahead, as its ramp-up in the telecom sector may not be as smooth as expected.
The current share price of the Mukesh Ambani-led company has already presumed telecom enterprise value of $46 billion. An appreciation of 15 percent in the stock in compound annual growth rate terms would require telecom sector value to increase to $75 billion in three years, which seems unlikely due to elevated levels of capital expenditure, the brokerage said.
Additionally, telecom ramp-up might be irregular as average realisations per subscriber may remain muted due to customer pushback on tariffs and increased competition, Jefferies noted.
Among key negatives, the company's return ratios stay modest even as earnings per share rise. Net debt is likely to remain floated, free cash flow might lag expectations and earnings may falter too, the brokerage added.
The operating profit is expected to double to $20 billion over the next four-five years as new projects begin fructifying, but much of that appears to be priced in the company value, said the brokerage. However, refining margins are expected to ease from their current high levels.
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