Reliance Industries Shares Available At A Bargain, Says CLSA
The research firm has set a target price of Rs 2,970, implying a potential upside of 35% from the current levels.
Shares of Reliance Industries Ltd. are available at a bargain after a near 20% plunge in less than four months as the price does not factor in its growth plans, according to CLSA.
The current price is just 5% above a conservative valuation at which the oil-to-telecom conglomerate sold stakes in Reliance Jio Infocomm Ltd. and Reliance Retail Ltd. to private equity firms nearly three years ago, CLSA said in a March 20 note.
CLSA values RIL's oil-to-chemicals unit at a 15% discount to the agreed enterprise value of $75 billion at which it planned to sell stake to Aramco.
This implies a "paltry" $9 billion being assigned to the progress since mid-2020 including clean energy capex plan worth $10 billion; doubling of retail selling space and e-commerce reach; telecom tariff hikes and an expected $25-billion spend on 5G.
There is a good chance of a Jio or retail IPO in the next 12 months, it said. Despite rising 5G capex, consolidated leverage should remain under control and well below 2x its Ebitda, CLSA said.
RIL shares fell as much as 1.80% to its 52-week intraday low of Rs 2,183.1 apiece on Monday. On Tuesday, the stock closed 3.20% higher, as compared with a 0.70% gain in the benchmark Nifty 50.
The total traded quantity so far in the day stood at 1.3 times the 30-day average. The relative strength index was 39.40.
The research firm reiterated its 'buy' rating on Reliance Industries with a target price at Rs 2,970, implying an upside of 35% from the current market price.
Of the 37 analysts tracking the company, 32 maintain a 'buy', two recommend a 'hold', and three suggests 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 26.4%.
Recent brand launches of Independence and Campa Cola suggest visible strides in RIL's FMCG foray in 2023.
The company would start offering its portable 5G device (Jio Airfiber) to ramp up wireless broadband additions and launch its affordable 5G smartphones.
A cooling crude price, a pick-up in gasoline spreads, and the near removal of the windfall tax have led to higher refining margins, CLSA added.
The key petrochemical product spreads have also bounced from lows on the back of China reopening.
Coupled with the start of phase-3 gas production from its eastern offshore block, this should drive oil and gas profits higher in the March-June quarters.
The investment risks include delays in commissioning key downstream expansion or slower-than-expected pace of subscriber additions for telecoms.
The brokerage remains 'overweight' on the company with a revised price target of Rs 2,960 for March 2024, implying an upside of about 33% from the current market price.
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-19 shutdowns, the brokerage said in a March 16 note.
Retail growth has been strong, with third-quarter fiscal 2023 revenues and operating profit growing 90% and 184%, respectively, compared to the corresponding quarter of FY19.