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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.

<div class="paragraphs"><p>Labourers rest in front of an ad of Reliance Industries. (Photo: Shailesh Andrade/Reuters)</p></div>
Labourers rest in front of an ad of Reliance Industries. (Photo: Shailesh Andrade/Reuters)

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.

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Reliance Industries' Core Strength Is A Key Positive, Says JPMorgan

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%.

CLSA

  • 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.

JPMorgan

  • 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.