Kotak Equities terms Reliance stocks as ‘compelling buy’ despite recent weakness

Kotak Institutional Equities has maintained its bullish view on Reliance Industries despite recent underperformance, terming it a “compelling buy”, and has set a target price of Rs 2,900 per share, which is nearly 30 percent higher than the current market price. The brokerage in a note to investors said that Reliance Industries is likely to show solid performance across its energy, telecommunication, and retail sectors.

Shares of Reliance Industries had dipped to a 52-week low of Rs 2,180 per share on March 20. At 2.18 PM, the shares of Reliance Industries were quoting at Rs 2,249.65 on the NSE.

“After the recent correction [RIL -20%, NIFTY -10%], we believe at CMP, the market is not ascribing any value to RIL’s New Commerce/FMCG forays, New Energy or duopoly benefits in R-Jio,” the brokerage said in a note, adding that it is more optimistic on Reliance’s prospects in each of its key sectors.

Despite the recent fall in share prices, Kotak reiterated a ‘buy’ call on the stock, and set a target price of Rs 2,900 per share, which is slightly lower from its previous estimate of Rs 3,000. The revision to the face value target price was largely due to a cut in Reliance Jio’s valuation and higher net debt assumption, according to the note.

Looking at the telecommunication sector, the brokerage firm expects Reliance Jio’s market share gains to accelerate as delays in the tariff hike would effectively lead to duopoly in the market. R-Jio’s new entry-level family postpaid plans are 17-30 percent cheaper than its earlier plans. This is likely to prompt Jio’s rivals to react with their own cheaper plans, and thus delay any industry wide tariff hikes, Kotak had said earlier.

“We lower our 2024-25E EBITDA by 4-5%, largely driven by delayed tariff hike assumption in R-Jio,” Kotak said.

The brokerage also maintains its robust outlook for Reliance’s energy sector as product margins remain strong. “In refining, though diesel cracks have moderated, the decline has been largely offset by higher cracks for other products,” Kotak said.

In the retail sphere, Kotak Equities expect Reliance Retail to post over 30 percent compound annual growth rate during the financial years 2023-25 driven by aggressive new store and online commerce expansions. “This expansion will require significant incremental capex over the next few years, but will ensure RR’s leadership across several verticals,” the brokerage said.

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