Post a strong set of quarterly numbers by Reliance Industries (RIL), a host of brokerages said the stock is trading an undemanding valuations and that upside looks all likely for the scrip ahead. Jefferies said forward Ebitda multiples for Reliance Industries are at lowest levels since Covid-19, and are at a discount to the 5-year average, saying the Street is ascribing little value to e-commerce, green energy, FMCG, financial services and new petchem at the prevailing market price. It said the guidance by the RIL management on net debt has allayed leverage concerns, as the foreign brokerage set a target on Rs 3,125 on the stock.
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Goldman Sachs said RIL’s comments on ‘disciplined capital allocation and maintaining net debt/Ebitda of less than 1 time’ should assuage investor concerns on leverage. This foreign brokerage said the RIL share price is discounting a combination of $70 a barrel Brent oil price, no valuation for the New Energy business, and no telecom tariff hike for 2 years alongside slower subscriber market share gains. In its updated scenario analysis, Goldman Sachs suggested that the stock has 12 per cent (Rs 2,065) downside in the bear case and 83 per cent upside (Rs 4,300) in the bull case.
Risk reward on RIL is attractive and that the recent RIL underperformance vis-a-vis Nifty is unwarranted, said JPMorgan. For Morgan Stanley, energy segment drove Q4 Ebitda beat, which was 5 per cent above consensus estimates, thanks to recovery in chemical segment margins and fall in cost of gas and improvement in refining margins.
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“Store expansion was key to growth in retail and Ebitda was in-line. Profit beat of 18 per cent was also driven by lower tax rate and net debt was flat QoQ,” Morgan Stanley said.
CLSA has maintained ‘Buy’ on Reliance Industries with a target price at Rs 2,970 per share.
India’s most valuable firm in terms of market capitalisation had on Friday clocked a 19.10 per cent year-on-year (YoY) jump in net profit at Rs 19,299 crore for the March quarter compared with Rs 16,203 crore profit in the corresponding quarter last year. The Mukesh Ambani-led conglomerate said its revenue from operations for the quarter rose 2.12 per cent YoY to Rs 2,16,376 crore compared with Rs 2,11,887 crore in the same quarter last year.
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RIL said its revenue was supported by continuing growth momentum in consumer businesses. Digital Services segment achieved 15.4 per cent YoY growth while retail segment grew 19.4 per cent YoY. Revenue from oil & gas segment doubled YoY on account of higher price realisations. However, this was partially offset by decrease in revenue from O2C business on a on account of sharp decrease in crude oil prices and lower price realisation on downstream products, Reliance Industries said.
“Ebitda beat JEFe led by O2C and Jio while Retail was tad lower. Retail’s scorching space addition should aid 30 per cent Ebitda Cagr but capex was elevated. Jio generated healthy FCF with elevated 5G capex possibly opening the next leg of growth. Recent softness in refining margins could reverse with healthy US driving season demand and Chinese reopening,” Jefferies said.
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JPMorgan said RIL’s large consumer capex in FY22-23 has further solidified its industry leading position, and operating leverage should translate into strong consumer earnings growth/cash flows from FY25 onwards.
That said, it felt relentless FII sell-down remains a key near-term headwind for the stock. This brokerage has March 2024 target of Rs 2,960 on the stock.
