JM Financial has maintained BUY rating on the RIL stock with a target price of Rs 2,900.
RIL stock is trading lower though the company reiterated aggressive growth plans across various business verticals and unveiled plans on new energy front at the AGM on August 28. While the street seemed disappointed about the absence of clear timelines regarding the telecom and retail IPOs, RIL plans to setup a battery giga factory by 2026 with its first CBG plant commissioned in Uttar Pradesh. The retail segment will focus on rapid store expansion and brand partnership/acquisitions to accelerate growth.
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For the longer term, however, market analysts believe that the focus on new age technologies might be useful. Swarnendu Bhushan – Co-Head of Research, Prabhudas Lilladher highlights the continued emphasis on new age technologies by RIL, “We believe RIL provides a good investment opportunity given 1) its transition towards new age technologies and 2) cash flow for growth serviced from traditional refining and petrochemical segment. The company is trading at 12.8x FY24 consolidated EV/EBITDA and 22.7x FY24 consolidated PE. We estimate consolidated EPS CAGR of 10.7% for FY23-FY25E and value Refining and petrochemical segment at 7.5x FY25 EV/EBITDA, Digital services at 15x FY25 EV/EBITDA and Retail at 37x FY25 EV/EBITDA. Key risks are project execution and technology risk in new energy.”
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ICICI Securities however is concerned about the fact that returns remain backended and maintain ADD rating on the stock, “Despite a near-18% CAGR in operating earnings over FY20-FY23, FCF earned during the period has remained muted. While our estimates suggest a solid 18.6% CAGR in earnings over FY23-FY25E, our concern on muted return ratios and limited FCF yield remains and reiterate ADD. The key risks include stronger OTC margin, lower capex, stronger ARPU growth in Jio and faster-than-estimated execution on green energy plans.”
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According to JM Financial analysis, “The company reiterated its plan to transition its O2C business into a sustainable, green, circular and consumer integrated chemicals and materials business. It also restated its New Energy business roadmap and its Rs 75000 crore capex commitment and announced its foray into wind power generation. We maintain BUY on RIL (TP of Rs 2,900/share) as we believe net debt concerns are overdone, and also because RIL has industry leading capabilities across businesses to drive robust 14-15% EPS CAGR over the next 3-5 years.”
