Reliance Industries' Core Strength Is A Key Positive, Says JPMorgan
The brokerage is one of the 32 firms out of 37 that maintain a 'buy' rating on the stock.
Reliance Industries Ltd.'s ongoing capex should allow it to scale up its already industry-leading petrochem, telecom, and retail segments over the next two years, according to JPMorgan.
The brokerage remains 'overweight' on the Mukesh Ambani-led conglomerate with a revised price target of Rs 2,960 for March 2024, implying an upside of about 33% from the current levels.
"In an increasingly capital-scarce environment, RIL’s core strength of investing large amounts of capital in growth projects is a key positive," JPMorgan said in a March 16 note.
With foreign Institutional Investor ownership at six-year lows, the stock’s multiple compression in the last year "appears to mirror the index derating rather than reflect new stock-specific risks".
JPMorgan is one of the 32 firms out of 37 that maintain a 'buy' rating on Reliance Industries' stock, according to Bloomberg. Only three suggest a 'sell' rating on the scrip, whereas two recommend a 'hold' rating.
The analysts at the brokerage said that earnings assumptions have upside risks including no tariff hike in 2023, slowing retail growth with no margin expansion, and Singapore gross refining margin at $7.5/bbl.
Every $1 gross refining margin, $50/t petchem spreads and 10% ARPU increase impacts earning per share by 5%, 6% and 5%, respectively, the note said.
The brokerage said that it is not expecting any new energy stake sales in, nor potential IPOs of consumer business in FY24.
While Jio's wireless market continues to expand, the non-telecom business has been slow to pick up with even more pain due to Covid shutdowns, the brokerage said.
However, retail growth has been strong, with third quarter of fiscal 2023 revenues and operating profit growing at 90% and 184% compared to the corresponding quarter of FY19.
"While near-term retail growth should slow down in line with softer consumer demand, Reliance Retail’s focus and investments on sq feet additions, omni-channel distribution, multiple brands/acquisition, own brands focus, large warehousing space additions and scaling up new commerce/Jio Mart/FMCG is positive."