RIL Cut To 'Outperform' As CLSA Sees Limited Upside After Recent Rally

CLSA downgraded Reliance Industries Ltd. to 'outperform' from a 'buy' rating, citing limited upside after the recent rally. The brokerage also lowered earnings per share estimates for the oil-to-telecom conglomerate by 2-5% However, the brokerage raised the target price on the stock to Rs 3,300 apiece from Rs 3,060 apiece.

A ramp-up in wireless broadband subscribers, a tariff hike, and the likely listing of Jio or retail or both are potential triggers for the stock, according to the research firm.

Reliance Industries' fourth-quarter standalone profit-after-tax fell 18% year-on-year to Rs 11,280 crore but rose 14% quarter-on-quarter and stood in line with CLSA's estimate.

"The beat for standalone along with in-line performance by Jio was offset by a 10% miss in retail Ebitda," the research firm said in an April 23 note. Consolidated post-minority profit-after-tax was slightly ahead due to a lower effective tax rate and higher other income. Consolidated capex fell by 10% year-on-year to Rs 1.3 lakh crore in FY24, and net debt fell by 8% year-on-year to $14 billion.

"We raise the multiple for telecom from 11.5 times to 12 times Ebitda, which is a 10% premium to the multiple for Bharti used by our telecom team." CLSA lifted the multiple for retail from 32.5 times to 33 times Ebitda as the research firm valued it at a 20% premium to the blended peer-average multiple.

Jio Performance Was In Line But Retail Disappointed

Jio's performance was in line, but retail disappointed both subscribers. ARPU was a bit below CLSA's expectations, but lower costs ensured Jio's Ebitda and PAT stood in line with the estimates.

Reliance highlighted that it has yet to monetise its 5G traffic, which makes up nearly 30% of network usage, and it remains excited about its wireless broadband offering.