Value buying? RIL stock rises 2% after a steep fall; CLSA sees 30% upside

The share price of Reliance Industries had cooled-off from its all-time high as a delay in the possible IPOs of Jio and/or Retail led to reduced excitement towards the stock.

Shares of Reliance Industries (RIL) were up 2 per cent at Rs 1,272.50 on the BSE in Thursday's intra-day trade in an otherwise subdued market on value buying. The stock was the top gainer among the BSE Sensex 30. In comparison, the benchmark index was down 0.1 per cent at 77,613 at 02:42 pm.  In the past two months, the stock price of the country's largest company in terms of market capitalisation declined 15 per cent. It was down 22 per cent from its record high of Rs 1,608.95 touched on July 8. RIL was trading at its lowest level in the calendar year 2024.  RIL stock cooled off from its all-time highs as a delay in the possible IPOs of Jio and/ or Retail led to reduced excitement towards the stock. Slowing growth in the retail business was another negative. While improvements in Jio and Retail remain the centre of attention, the start of new energy projects is a potential catalyst that the stock is possibly ignoring.  Analysts at CLSA view the RIL as offering an attractive entry point to play important catalysts in 2025. The brokerage firm has an 'outperform' rating on the stock with a 12-month target price of Rs 1,650 per share.  Supportive domestic and export environments makes for a bright outlook for Indian solar manufacturers. RIL's fully integrated 20 GW solar gigafactory, set for launch in 3-4 months, will benefit from the firm's tech lead via global partnerships. Analysts said they derive a solar business value of $30 billion, based on a discount to recently listed peers, yet RIL stock is trading within 5 per cent of the brokerage firm's rainy-day valuation (assigning zero value to the new energy business).  RIL is set to kickstart its new energy venture in coming months, beginning with the first phase of its 20GW solar PV manufacturing facility. The company has set an ambitious target to scale up the new energy business to the size of its oil-tochemical (O2C) business ($7.5bn Ebitda in FY24) in the next 5-7 years.  Current valuation is not factoring in the value of new energy projects whereas recent listings in the solar space suggest a lot of investor excitement in the sector. Recovering global solar PV pricing may aid in this rerating. A gradual ramp-up of new energy projects starting with the firm’s PV gigafactory will be a catalyst, CLSA said in stock update.  Delay in start of new energy projects may be negative as investors may not be willing to assign a big enough value without a proof of concept. Extension of low growth for Reliance Retail beyond 2-3 quarters will also be a worry. Lack of proof on monetisation of its 5G capex could be negative for the telecom business, said analysts.  “In our blue-sky case, we expect potential upside of 72 per cent (Rs 2,186) driven by possible value unlocking for both Jio and Retail, along with scale-up of new energy to the size of the O2C business,” CLSA said.  The brokerage firm's Rs 1,650 target price is SOTP based, where analysts value the upstream business using DCF, along with 8x EV/Ebitda value for O2C business. Retail is valued at 31x EV/Ebitda and Jio valued at 13.2x EV/Ebitda.  “Our rainy-day valuation of Rs 1,234 is based on recent transactions to value Retail, Bharti Airtel's implied India business to value Jio and no value for its new energy business, while O2C and upstream are valued the same as in our base case,” CLSA said.