RIL snaps 8-day losing streak; CLSA sees 34% upside

Share price of Reliance Industries Ltd. inched 3 percent higher on March 21, snapping its eight-day losing streak. At 11:48 am, the scrip was trading 2.93 percent higher on the NSE at Rs 2,265.70. The stock price had fallen around 20 percent over the last 4 months and 10 percent in one year.

Brokerage firm CLSA reiterated ‘buy’ rating on the stock and believes lack of any major announcements has kept the stock subdued over the last 18 months which is currently trading just 5 percent above conservative valuation.

Also Read: Jefferies sees little value ascribed to Reliance’s new businesses; sets target at Rs 3,100

According to the brokerage, the current price does not reflect any value to RIL’s new energy foray and is at the same equity valuation for Jio and retail at which stakes were sold to private equities nearly three years ago. It has valued RIL’s O2C (oil to chemicals) segment at a conservative 15 percent discount to the agreed EV (enterprise value) of $75bn for the unsuccessful stake sale to Aramco.

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It believes multiple upcoming triggers can be expected in H2FY24 including ramp-up of its FMCG business, launch of Airfiber to catapult wireless broadband penetration and a new affordable 5G smartphone to monetise its pan-India standalone 5G network by end-2023 along with an initial public offer of Jio and/or retail.

Oil and gas should see improved profits in March and June quarters on the back of cooling crude prices, pick-up in gasoline and petchem products as well as china reopening. Gains from a 50 percent jump in retail selling space in the last 12 months should also show up in coming quarters, it said.

“We believe a lack of launches and growth areas has kept the stock subdued over the past 18 months. This could change in 2HFY24 as we expect the company to start offering its portable 5G device (Jio Airfiber) to ramp-up wireless broadband additions and launch its affordable 5G smartphone as it monetises its pan-India standalone 5G launch by end-2023.”

“Recent brand launches (Independence, Campa Cola) suggest we could see visible strides in Reliance’s FMCG foray in 2023. With three years having passed since the stake sale to PE investors, we see a good chance of a Jio and/or retail IPO in the next 12 months. Despite rising 5G capex, consolidated leverage should remain under control and well below 2x Ebitda,” it said reiterating its Buy rating at a target price of Rs. 2,970 implying a 34 percent upside over 20th March’s closing price of Rs 2,211.15.