Shares of Reliance Industries Ltd. gained after CLSA upgraded the oil-to-telecom conglomerate citing its “strong near-term growth prospects as well as big long-term promise”.
“Reliance remains a great way to play the long-term themes of rising share of organised retail and e-commerce, digital and technology penetration through Jio and its focus on new energy,” the research house said in a Jan. 31 note. “The IPO of Jio and retail could be big triggers to play out within 24 months.”
Also, positive momentum across businesses such as tariff hike in Reliance Jio Infocomm Ltd., strong expansion in retail, a higher oil-to-chemical margin and rising gas prices in exploration and production, CLSA said, drives 29% and 34% year-on-year growth in FY23 Ebitda and profit before tax, and puts “RIL into the top quintile on near-term profit growth on the Nifty”.
The research firm upgraded the stock to ‘buy' from ‘outperform' and raised the price target to Rs 2,955 apiece from Rs 2,850. “With 27% upside, we see now RIL is at a good entry point.”
Shares of RIL rose as much as 3%, the biggest intraday gain in more than two months, to Rs 2,406.5 on Monday. The stock closed 2.17% higher, the biggest intraday advance in over two weeks since Jan. 12.
Of the 39 analysts tracking the company, 24 maintain a ‘buy', 11 suggest a ‘hold' and four recommend a ‘sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 14.0%.
Other CLSA Highlights
After a 10% fall in two weeks, RIL is within 15% of our conservative valuation (Rs 2,020 a share). This assumes no value for new energy and $62 billion/$65 billion equity values for retail/Jio, which are the valuations at which stakes were sold to private equity players in mid-2020.
For O2C, we use about a 20% discount to the agreed EV of $75 billion for the unsuccessful stake sale to Aramco.
Big tariff hike in Jio, consolidation in telecom industry, progress in broadband and momentum in technology endeavours augur well for the company.
Reliance Retail has seen further improvement as dominant O2O player since the mid-2020 stake sale.
Definitive business progress in retail and Jio as well as a spike in valuation of companies in recently launched new energy business to justify the difference in current market cap and the conservative valuation.
Reliance Retail growth story has gained visibility. Daily orders on Jiomart has almost doubled over the past 15 months.
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