Morningstar has initiated coverage of Reliance Industries Ltd, or RIL. Piyush Jain, the equity analyst covering this company, gave the company a ‘no moat’ rating. At Morningstar, we classify moats as either wide, narrow, or none.
In his analysis, Jain makes note of the point that the highest quality refining businesses across the globe enjoy access to low-cost feed stocks or a transport advantage. RIL has neither. Overall, Reliance has more than 70% of its business exposed to crude oil, a global commodity, which does not give it an economic moat as evident by its return on invested capital which has trailed behind its cost of capital.
An economic moat is a long-term competitive advantage that allows a company to earn oversized profits over time. Quite simply, companies with a wide moat will create value for themselves and their shareholders over the long haul. To get a grip on moats, read How we use moats in equity analysis.
Jain has pegged the fair value estimate at Rs 908 per share. Currently, the stock is trading at Rs 843 per share, which is at a discount to our fair value. To understand more about this, read How Fair Value & Target Price differ.
To read the complete analysis on Reliance Industries Ltd, click here.