Citi Upgrades Reliance Industries To 'Buy' On Improved Risk-Reward

Reliance Industries Ltd. received an upgrade from Citi Research to 'buy' from 'neutral' as it believes risk-reward for investors has turned favourable along with a potential improvement in regional refining margins.

The brokerage increased its target price for the Mukesh Ambani-led conglomerate to Rs 1,530 per share from Rs 1,495 apiece, an upside of 25% from the previous close.

This upgrade comes after the stock underperformed the benchmark gauge and the broader markets amid a foreign exodus in domestic stocks.

The oil-to-telecom group's market cap was eroded by Rs 1.13 lakh crore since it reported a muted second-quarter update on Oct. 14 with a 7.8% plunge in the stock .

Reliance Industries reported its second-quarter results, with a net profit rise of 11% to Rs 19,323 crore for the quarter ended September 2024. Revenue for the same period slipped marginally. The profit growth was partially impacted by negative pressure on gross refining margins affecting the oil-to-chemicals segment.

"After a period of significant underperformance, we believe the risk/reward has turned favourable,” analysts at Citi said in a note on Nov. 25. The analysts expect an improvement in regional refining margins given reduced export competitiveness from China and limited further hike in exports.

Jio's position to benefit from improvement in pricing, better visibility on new energy, contribution, gradual retail recovery and clarity on value unlocking are key positives for the company, Citi said.

The softness in the retail business may continue for a couple of quarters, it said. The management too has alluded to softness in retail performance continuing for a couple of quarters before the benefits of streamlining operations and B2B recalibration start picking up, the note said.

Whilst continued foreign investors selling could act as a drag for largecaps, the energy earnings of the Mukesh Ambani-led conglomerate will benefit from a weaker rupee.

The company trades at a price-to-earnings of 23.45 times against the Nifty's P/E of 22.3 times. The stock has risen 5.7% during the last 12 months and has declined by 2% on a year-to-date basis.

Thirty-two out of the 38 analysts tracking the company have a 'buy' rating on the stock, three suggest a 'hold' and another three have a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 23.6%.