India’s most-valued stock Reliance Industries Ltd (RIL) has underperformed the BSE benchmark Sensex, falling 11 per cent since the demerger of Jio Financial Services (JFS) against a 3 per cent fall in the 30-pack index during the same period.
The Mukesh Ambani-led company saw its market capitalisation (m-cap) falling Rs 1,89,463 crore to Rs 15,83,122 crore at Thursday’s closing level from Rs 17,72,585 crore on July 20. This was the day when the oil-to-telecom major turned ex-date for demerger of financial services business (later JFS shares got debuted on August 21).
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A few brokerages, which have come out with their views on Reliance Industries stock since then, suggested target prices in the Rs 2,600-3,000 range.
“We reiterate our ‘Buy’ rating for RIL as it is best-placed to benefit from a robust refining construct and note upside risks to our conservative refining margin estimates of $12 a barrel for FY24,” Nomura India said this week.
Nomura India said Reliance Industries’ Ebitda has 2 per cent sensitivity and earnings per share (EPS) 4 per cent sensitivity to every dollar increase in refining margins. RIL also benefits from its advantageous crude oil sourcing, which will keep realised margins at a significant premium to benchmark margins, the foreign brokerage said.
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In a note on September 20, Morgan Stanley said Reliance’s monetisation cycles are becoming shorter (2-3 years against 5-6 years in the past), while investments in new growth areas accelerate.
“This keeps dollar earnings growth in the 13-15 per cent CAGR growth range through cycles and steadily raises returns,” it said in a note. Morgan Stanley said RIL’s supply-side challenges should keep refining margins high, while noting that broadband subscribers are picking up and gas production is increasing.
“Consumer Retail is seeing good traction on store additions; e-commerce has gained traction. We estimate $20 billion of NAV accretion from clean power. RIL in the cusp of a monetisation cycle and a capex peak over the next few quarters,” it said.
This brokerage has a target of Rs 2,821 on the stock. Jefferies has retained its ‘Buy’ on the stock with a target of Rs 2,950.
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BOB Capial Markets has a target of Rs 3,015 on the stock, Prabhudas Lilladher sees it at Rs 2,898, ICICI Securities finds it worth Rs 2,650. Kotak Institutional sees fair value of the stock at Rs 2,600.
Net-net, the stock has an average target of Rs 2,796, as per Trendlyne, suggesting a potential 20 per cent upside ahead.
Recently, strategic investors such as QIA and KKR bought stakes in retail arm Reliance Retail Ventures. There are reports that ADIA is also looking to invest $600 million in the retail arm. Motilal Oswal said the recent deal affirms Reliance Retail’s robust valuations.
“We value the refining and petrochemical segments at 7.5 times EV/Ebitda, arriving at a valuation of Rs 904 per share for standalone business. We ascribe an equity valuation of Rs 750 per share to RJio and Rs 1,485/share to Reliance Retail, factoring in the recent stake sale and an equity valuation of Rs 16 per share pertaining to New energy on book value. We reiterate our BUY rating with a target of Rs 2,920,” the domestic brokerage said last month.
