The rally in Mukesh Ambani’s Reliance Industries Ltd share price tag may perhaps continue if existing petrochemical spreads sustain, stated worldwide brokerage and analysis firm Jefferies in a note. Sustained petrochemical spreads could pave the way for oil-to-chemical stake sale by RIL this fiscal year, re-rating multiples and shooting the stock 45% larger from existing levels. The note highlighted that polymer spreads are at decade-highs on sturdy downstream demand and polyester spreads are recovering. Currently, RIL share price tag is trading at Rs 2,170 per share — up 10% in 3 trading sessions.
Polymer spreads at decadal highs
Jefferies stated that polymers spreads are at decadal highs, helped by demand from downstream industries such as automobiles, durables, customer goods, healthcare supplies, and packaging. “Sustained demand strength on fiscal support in major economies, commissioning delays in new projects, and vaccination penetration should support polymer margins in FY22E,” the report stated. Polyester chain spreads, right after possessing shrunk pre-covid, are now recovering steadily. At this juncture, China’s self-sufficiency move is believed to be weighing on polyester spreads.
Buoyed by polymers that comprise 45% of its petrochemical portfolio, RIL’s portfolio level spread is nearing its decade higher and is 30% ahead of Jefferies estimates for the existing fiscal year. “RIL’s petchem segment Ebitda could be 50% ahead of Jefferies estimates on operating leverage benefits if the current spreads were to sustain over FY22E. This could drive 14% upside to our consol Ebitda estimate,” the note added.
O2C stake sale may perhaps reverse underperformance
Reliance Industries share price tag has underperformed the benchmark Nifty 50 due to the fact the starting of this year. While the Nifty index zoomed 10.8%, Reliance Industries has added 8%, the majority of which came in the last couple of trading sessions. The stock has underperformed the benchmark index even more than the last one-year time frame. “In our view, sustained strong petrochemical performance improves the likelihood of O2C stake sale in FY22. This could lead to a reversal of the 40% Nifty underperformance,” Jefferies stated.
Target price tag
At the existing marketplace price tag, valuing RIL’s power enterprise at extended-term typical multiples, Jefferies stated it is left with Rs 1,150 per share as the imputed worth of RIL’s stake in Jio and Retail. Jefferies has a base-case target price tag of Rs 2,580 per share. However, a more optimistic upside situation pegs the target price tag at Rs 3,150 apiece. Here, Jefferies expects strategic stake sale in O2C enterprise to re-prices multiples, more quickly consolidation in telecom leads to tariff upside in Jio, and achievable public listing of Jio re-rating valuation many.