Jefferies has reiterated an underperform rating on the stock with a lowered target price of Rs 1,812 from Rs 1,900. The research firm sees a disruption due to the Supreme Court order that banned liquor shops on highways. Even if states choose to circumvent the ban, the company may still see demand destruction, it added. The ban will now shift demand to shops further away from highways.
The key risk to the stock could be monetization of non-core assets and a further buyback by Diageo.
On the financials front, analysts at the firm have cut FY19 earnings per share estimates by 6.5 percent and value the stock using 12-month forward PE target multiple of 50 times.
CLSA has recommended a sell call with a reduced target price to Rs 1,600 from Rs 2,100 as profitability could be long going ahead. It has cut FY17-19 EPS by 17-28 percent, but also expects states to support the industry during the transition which will still take time. The key upside risk to the stock could be the hope of a tender offer from Diageo.
Morgan Stanley is overweight on United Spirits with a target price of Rs 2,900. It foresees 42 percent of the country’s liquor sales facing dislocation due to the ban. Furthermore, it sees a near-term impact on the firm’s volumes as the business gets aligned to the new rules.
IIFL has an add rating on the stock with a target price of Rs 2,250. The brokerage house sees muted growth to FY18 on the back of the apex court’s verdict as well as implementation of GST. The ban will weigh on the company’s Q4 alcohol sales as well.
Further, demonetisation impact will continue to be visible, but at a lower level than Q3. It sees the firm’s earnings before interest, taxes, depreciation and amortisation growing 15 percent and hence sees 14 percent decline in EPS in Q4.
Kotak Institutional Equities expects the SC verdict’s impact to be material but transitionary in nature till shops relocate. It sees the decision hitting liquor firms as 35-40 percent liquor outlets are located along the highways. This relocation will drive de-stocking in the near term which can impact Q1 volume.
JPMorgan is neutral on the stock with a target of Rs 1,240. The research firm sees Reliance’s decision to extend Jio Prime deadline as a step to add more subscribers and believes that the firm’s telecom journey has just begun. The sign-ups are a positive, but extension and more freebies are puzzling, it says.
Furthermore, it sees net debt to continue to rise and the final capex figure is yet to be seen. Jio would need revenues of USD 400-500 billion to be PBT positive and forecasts EBITDA of USD 221 billion in FY21 and USD 287 billion in FY22. The stock also implies a telecom EBITDA of over USD 4.7 billion.
Disclaimer: Reliance Jio is a part of Reliance Industries that owns Network 18 Media & moneycontrol.com
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