Reliance Industries Gets Second-Highest Target Price By Bernstein
RIL continues to be a core holding for any portfolio looking to take advantage of the secular growth in Indian economy: Bernstein
Reliance Industries Ltd. is in the mid of a “secular growth phase” with strengths across its oil, retail, new energy and telecom ventures, according to Bernstein.
“Refining has been exceptional with record margins and expansion of the O2C (oil-to-chemicals) business into downstream chemicals which still has decades of growth ahead,” the New York-based research house said in a June 29 report. “The build out of JioMart (e-commerce) and omnichannel presence, scaling up of the Jio platform, and investments in new energy to accelerate energy transition will all contribute to growth.”
Bernstein expects the combined Ebitda for the four businesses to increase by 20% CAGR in the next four years. “Oil-to-chemical earnings are expected to increase more than in any other segment in FY23, driven by record refining margins as a result of exceptional market conditions, triggered by a reduction in supply of refined product from Russia and from China.”
Based on its estimates, the research house said the company’s Ebitda can more than double from FY22 to FY26 to Rs 2.47 lakh crore. This will happen “mainly through the growth in new energy, digital and retail, while the oil will see earnings normalise in FY24 onwards as refining margins regress to the longer-term average”.
That prompted Bernstein to raise its price target for RIL to Rs 3,360 from Rs 2,830 apiece, implying about 35% upside potential. That’s the highest target price by any foreign research firm and second highest overall.
InCred Research, a Mumbai-based brokerage, has the highest target price on RIL at Rs 3,369 apiece.
Bernstein rates the company ‘outperform’, which, according to it, is that the stock is expected to outpace the market index by more than 15 percentage points.
“Reliance continues to be a core holding for any portfolio looking to take advantage of the secular growth in the Indian economy,” the report said.
Bernstein has also listed certain downside risks to its price target and estimates for RIL:
Operational complications at the Dhirubhai field which result in a significantly lower-than-expected production output and slower expansion.
In telecom, 5G services will require additional spectrum which could be higher than our current estimates.
Downside risks to refining and petrochemical margins could come from slow economic growth in the region and demand growth remains weak.
In retail, slower-than-expected footfalls, increase in capital expenditures and higher competition are key downside risks.
Shares of RIL rose as much as 1.08% after opening on Wednesday but are trading 0.8% higher as of 10:40 am.
Of the 39 analysts tracking the company, 29 maintain a ‘buy’, seven suggest a ‘hold’ and three recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 13.4%.