Reliance Industries Ltd. (RIL) shares were trading with losses on Friday morning, failing to hold on to opening gains amid bearish market sentiment. Mukesh Ambani-led Reliance Industries opened with marginal gains on Friday but was soon seen trading 1% lower. The oil-to-telecom behemoth is due to announce its quarterly earnings today. Ahead of the results, analysts at ICICI Securities have re-initiated the coverage of the stock with an ‘Add’ rating expecting growth across verticals. RIL shares opened at Rs 2,650 before hitting a low of Rs 2,602 per share intraday.
Energy re-energises RIL
In recent months, global energy sector has been volatile with a succession of events around the world rocking the stability of supply, demand fluctuations and pricing trends. ICICI Securities said that the recent trend in pricing could support a sharp boost to OTC earnings over FY23-24E. “Our estimates suggest that against GRMs for FY20 of US$8.9/bbl (last full reporting year when RIL disclosed GRMs), FY22/23/24E can see GRMs of US$7.9/11.9/12.0 per bbl, respectively, supporting earnings materially,” ICICI Securities said.
RIL’s pivot towards green energy has also been in focus recently. “The plans to invest more than Rs 700 billion in 4 giga factories for solar/hydrogen/fuel cells and battery storage solutions are significant, and assuming a pre-tax ROCE of 14-15%, EBITDA from this segment alone can touch Rs 200-210 billion at full commissioning,” analysts said.
Retail ‘Future’ not in doubt
Analysts at ICICI Securities believe RIL’s retail unit’s market-leading growth to sustain over the next 2-3 years. “RIL has managed to create a truly world-class scale in its retail business in a very short period of time creating an offline presence which is several times that of nearest peers in terms of both size and reach,” they said. Reliance Retail now has around 40 million sqft area under it, which is ahead of peers and comparable to global giants. Further, the partnership with Facebook-WhatsApp is seen as another lever for growth.
Although the major deal with Kishore Biyani’s Future Group has been rejected, Reliance Retail has taken over the lease of 800 stores, earlier being run by Future Group. “As per estimates, this implies Reliance Retail now has access to a material part of 16 million sqft of prime retail real estate of the Future group which accounted for ~60% of total revenue of ~Rs 300-320 billion,” ICICI Securities said.
Jio — a steady performer
Despite a reduction in subscriber base over the last few quarters, due to culling of inactive subs/sim consolidation, ICICI Securities believes that with better flow-through of ARPU increase and the refinancing of debt, EBITDA and PAT will likely show strong numbers. “However, in the near term, we expect headwind in 4G net add due to high inflation for entry-level smartphone prices, and price hike in 4G will make data services relatively expensive,” they added.
Valuations leave little headroom
RIL’s current multiples of 18x FY24E PER/ 10.5x EV/EBITDA and 1.8x P/BV put it comfortably in the top tier of most global peers in the energy space, according to analysts. “While we are strongly optimistic about the prospects of the green energy business as well as the strong momentum being seen in the OTC segment over the next 12-18mths, we believe current multiples are at a “zero things can go wrong” scenario, one which we do not find tenable,” they added. With an ‘ADD’ rating, RIL has a target price of Rs 2,960 per share, implying a 13.75% upside from today’s lows.