 "Reliance industries, Reliance oil business")
Shares of Reliance Industries (RIL) hit an all-time high of Rs 3,025, as they rallied 6 per cent on the National Stock Exchange (NSE) in Monday’s intra-day trade. Meanwhile, the Nifty surged 3 per cent after exit polls indicated a clear victory for Prime Minister Narendra Modi-led NDA government in the 2024 Lok Sabha elections.
The stock of the country’s most-valued company surpassed its previous high of Rs 3,024.90 touched on March 4, 2024. RIL today saw a Rs 1.12 trillion market capitalisation gain in intra-day trades. At 03:09 pm; with Rs 20.41 trillion market capitalisation, RIL was up 5.5 per cent at Rs 3,017.45 on the NSE, the exchange data shows.
Over the last decade, RIL has successfully incubated businesses of the future, such as digital services and retail, and has transformed itself from being a legacy oil & gas (O&G) business. In telecom, RIL is the industry leader, and has made significantly larger investments in 5G than peers.
Brokerage firm BNP Paribas thinks RIL is well-positioned to benefit from rising data demand in India and sees a likely increase in tariffs. Its retail business continues to see rapid store-space expansion. The upstream O&G business had a significant turnaround, with the start of new production from KG-D6 gas fields and improvements in realisation. The brokerage firm thinks RIL's new green-energy businesses (solar, batteries, fuel cells and hydrogen) looks promising, though it awaits more visibility.
“We tweak our FY24-26E EBITDA and earnings by c1 per cent. We raise Jio’s FY25-26E EBITDA slightly assuming a telecom-tariff hike in June 2024. We trim our FY25E retail EBITDA on the slight miss in 4QFY24. Our target price increases by 5 per cent, primarily due to our higher EBITDA assumption and higher EV/EBITDA for the telecom business. We raise our target EV/EBITDA for Jio to 11.5x from 11x on factoring in the expansion of telecom peer valuation multiples. We also incorporate the media business based on the Reliance- Disney deal valuation,” analysts at BNP Paribas said in Q4 result update. The brokerage firm has an ‘outperform’ rating on RIL with a target price of Rs 3,239 per share.
Analysts at Goldman Sachs believe the businesses RIL is investing more in the next 3 years (retail and upstream new energy) are relatively less capex heavy, higher in returns (the brokerage firm estimate retail business CROCI ~17 per cent in FY25E-27E) and have a shorter gestation period (eg. c.2 years for construction of an integrated solar plant).
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The brokerage firm said its analysis suggests RIL shares tend to outperform the Indian market during two scenarios: (1) expanding returns (eg. 2017-19), and (2) valuation discovery through stake sale in newer businesses (eg. Jio and retail stake sales in 2020-21). Over the last two years, both these drivers were largely absent, potentially driving the shares’ underperformance.
“We expect rising returns ahead (101/75/92 bps CROCI expansion in FY25E/26E/27E) which could compound with further potential value unlock through potential,” the brokerage firm had said in March 2024 report. It reiterates ‘buy’ rating on RIL with target price of Rs 3,400 per share.
