Analysts expect Aramco deal update, ground-breaking products in RIL AGM

The upcoming annual general meeting of Reliance Industries (RIL), scheduled to be held on June 24, will be a keenly watched event, according to analysts, where the company is touted to spell out its plans for the oil-to-chemical (O2C) telecom, digital and retailing verticals.

“Over the last year, new investors have joined RIL’s digital and retail business at subsidiary level and RIL has formed new partnerships with global players like Google, Facebook, Microsoft, QUALCOMM etc. Investors now expect RIL to give direction to these businesses and announce ground breaking products. There is also expectation of some update on Saudi Aramco deal and speculation that the Chairman of Saudi Aramco may join RIL’s board,” wrote Thomas C. Hilboldt, head of resources & energy research for Asia Pacific at HSBC in a recent co-authored note with Puneet Gulati and Saurabh Jain.

Meanwhile, they maintain a 'hold' rating on the stock with a target price of Rs 2070 – down nearly 6.4 per cent from the current market price. HSBC continues to like RIL’s business and balance sheet and believe all three of its core businesses – O2C, Retail, and Digital Services – have become self-sustaining and cash-generating, with Retail and Digital growing strongly. 

“Recent stake sale transactions have set a valuation benchmark, but investors are now likely to watch out for a new meaningful uptick in business performance,” HSBC said.

Retail: The next big driver?

Goldman Sachs, however, is betting big on RIL's retail vertical and expects it to be the company's next growth engine with potential for retail EBITDA to grow over 10x over the next 10 years. It values RIL's retail busines at $88 billion in their base -case scenario and at $120 billion in their bull-case scenario.

"RIL has focussed on building strong digital capabilites and we believe the scale-up in omni-channel offering is driving sizeable market share wins. We see a six-fold increase in grocery organised retail penetration in India by FY30, coupled with around 15 per cent market share gain for RIL. We expect RIL core retail revenue to grow 36 per cent CAGR over the next four years to $44 billion and e-commerce revenue to be be 35 per cent of total retail revenues in FY25, at $15 billion," wrote analysts at Goldman Sachs in a note dated June 21.

For RIL, according to G Chokkalingam, founder and chief investment officer at Equinomics Research, the telecom story has played out well over the past year and the company has been able to deleverage itself. “In the upcoming AGM on June 24, I expect the company to unveil plans for the oil & gas vertical and update on the Saudi Aramco deal,” he said.
 

Key announcements & their impact

 

Those at ICICI Securities believe RIL’s traditional business will keep generating cash-flows going ahead, as the macroeconomic situation across the globe continues to improve.

On the other hand, the new consumer businesses – Reliance Jio and Reliance Retail – will be the growth driver for the company in the coming years. 

“The company has a strong balance sheet post raising of funds which is a positive. Growth in retail and digital services coupled with improvement in oils to chemicals (O2C) performance will drive the operating performance going forward,” analysts at ICICI Securities said in a recent note.

The recently unveiled fiscal 2020-21 (FY21) Annual Report of the company showed improved quality of earnings, elevated capex, cash-flows impacted by repayment of interest-bearing liabilities and a sharp reduction in net debt.

“Strategic stake sale in O2C business, Recovery in gross refining margins (GRM), Faster-than-expected tariff hikes in Jio and possible listing, surprises on market share gain and profitability and a possible banking license are some of the catalysts for the stock performance going ahead,” wrote analysts at Jefferies in a recent note. 

Over the last 10 years, according to HSBC, RIL has seen an average surge of around 140 per cent in trading value on its AGM day versus the month-ago volume. However, in the last 10 years, from the month prior to the AGM date and the week prior to the AGM date, the stock has outperformed the Nifty nearly half the time and three out of 10 times, respectively.

In their base case scenario, Jefferies maintains a price target of Rs 2,540 on RIL stock - an upside of around 15 per cent from the current levels. Their bullish case target stands at Rs 3,150 and see the counter at Rs 1,850 in case of a downside.

RIL stock movement