Reliance Industries Receives Target Price Hike From Citi On Long Term Growth Drivers

Citi Research increased the price target for Reliance Industries Ltd. to Rs 1,690 from Rs 1,585 after it noted long term growth drivers for the Indian telecom industry, particularly Jio. The brokerage maintained a 'buy' rating for the firm.

The research firm underlined not to overlook the long runway for growth at the expense of the next round of tariff hikes. The focus of the market on the next round of tariff hikes misses several other structural drivers that provide a long runway for growth for the Indian telecom sector in general and Jio in particular, according to the brokerage. "We forecast a three-year consolidated Ebitda Compound Annual Growth Rate of 16% for Jio Platforms, valuing the business at an Enterprise Value of $135 billion; the contribution of factors other than tariff hikes to this growth is 6-7% CAGR."

The opportunities in home broadband (including Fixed Wireless Access) and enterprise are key emerging areas for growth for the telecom sector, the brokerage said.

Double digit growth due to better data and 5G monetisation, still-low smartphone penetration, favourable macros such as low telecom spends in the economy, and low Average Revenue Per User inflation relative to Consumer Price Index would be long term sustainable trend, Citi said.

It projected an expansion in JPL's Return on Capital Employed and Free Cash Flow generation. "We forecast JPL’s ROCE to expand from 8- 9% over FY24-25 to 13-15% by FY27-28E, accompanied by $5-6 billion of annual FCF generation."

It also hiked the enterprise valuation for JPL to $135 billion against the $125 billion earlier, owing to increase in Citi's increase in the EV/Ebitda target.