UBS retains ‘buy’ tag on Reliance Industries with 27% upside, expects strong performance across segments

UBS expects RIL to return over 27 percent from current market price. It expects Reliance to report Q3 FY23 EBITDA of Rs 34,100 crore up 15 percent YoY and 9 percent QoQ, with sequential earnings expansion across energy and consumer businesses.

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Global research and broking firm UBS has retained its buy call on Reliance Industries (RIL).

The research firm expects RIL to return over 27 per cent from the current market price. It expects Reliance to report Q3 FY23 EBITDA of Rs 34,100 crore, up 15 per cent YoY and 9 per cent QoQ, with sequential earnings expansion across energy and consumer businesses.

Strong performance across segments to drive YoY/QoQ EBITDA growth

“O2C (oil to chemicals) earnings would recover QoQ led by higher refining margins, though partly offset by fuel export taxes and lower petchem spreads, UBS said. It expects performance of digital (Jio) and retail to remain strong (EBITDA +5 percent QoQ), driving share of consumer business in segment EBITDA to 49 percent.

“Overall, we estimate Reliance’s consolidated profit after tax (PAT) at Rs 151 billion (-4 percent YoY, +10 percent QoQ, assuming 24 percent tax rate). We think the stock is pricing in near-term petchem weakness and overhang of export taxes, but not pricing in Retail revenue growth potential or upside to new energy opportunities,” UBS added.

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Improving subs/ARPU for Jio (Digital); Retail revenue growth continues

UBS expects strong net subs addition for Digital (Jio) and increasing ARPU (Rs 180 per month) to drive a 3 percent QoQ increase in EBITDA to Rs 12,700 crore. The brokerage firm estimates YoY/QoQ revenue growth of 22 percent/8 percent for retail (aided by festive season) with EBITDA margin expanding to 7 percent.

Retail revenue growth potential, New Energy opportunities not priced in

UBS believes that investors are not pricing in Retail’s revenue growth potential from rapid store expansion, e-B2B revenue growth and private labels. Additionally, consensus seem to underappreciate the upcoming integrated manufacturing ecosystem for New Energy business.

It has maintained its buy rating on the stock, building in an 18 percent earnings CAGR over FY22-25E with an unchanged price target of Rs 3,250 per share.

At 13:01 hrs Reliance Industries was quoting at Rs 2,552.00, down Rs 23.15, or 0.90 percent on BSE. It has touched an intraday high of Rs 2,573.00 and an intraday low of Rs 2,548.05.

Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.