Mukesh Ambani’s Reliance Industries Ltd’s (RIL) share price tag continues to trade in red, now down more than 6% considering that last Monday. The biggest private business in the nation, by market place capitalisation, failed to impress investors with a huge Rs 75,000 crore capital expenditure for the new power business enterprise. With the stock lagging on the bourses, worldwide brokerage firm Macquarie Group has reiterated its ‘underperform’ rating on the stock with a 12-month target price tag of Rs 1,350 apiece, translating to 35% downside prospective from the existing market place price tag. So far this year, the RIL share price tag has gained 5.8%, though the Nifty 50 has zoomed 13%.
Takeaways from Annual General Meeting
JIO/Digital Services: Analysts at Macquarie think the JioPhone Next launch was in line with expectations. “We assume JIO prioritizes subscriber share over ARPU / customer quality and scales to 500 million users by end-FY23,” they mentioned. JioPhone Next subscribers come in at an implied Rs 83/month ARPU. The consumer boost will dilute the existing reported ARPU of Rs 138/month by ~10%, according to the report.
Retail: With the expanding Indian retail market place, Macquarie analysts think that Reliance Retail net income will rise from $11 billion to $18-25-50 billion in FY23-25-30, and EBITDA will boost 3x in 5 years. On completion of the Future Retail deal, Macquarie sees segment income escalating 27%.
Oil to chemical: Although Mukesh Ambani mentioned that deal with Saudi Aramco is progressing, Macquarie highlights that the stake sale was at a valuation of $75 billion in a bullish downstream margin atmosphere. This could come down owing to modifications post-2019.
FCF issues
Reliance Industries has not managed to sustain its totally free money flow generation more than the last 15 year, the report mentioned. “We have increased our capex outlook by 20% to ~$12bn/pa, ~50% above current consensus. On our forecasts, RIL remains FCF negative for the foreseeable future,” they added. Reliance Industries plans to invest a huge quantity of Rs 75,000 crore ($10 billion) on capital expenditure.
Analysts also highlighted that Reliance Industries’ incremental capital employed tilts back towards power (albeit green) versus positioning for a new-age customer-facing digital business enterprise in Jio and retail.
Outlook
Near term outlook for Reliance Industries is positive, helped by cyclical improvement in refining and chemical margins. Macquaries remains 25% beneath consensus estimates on earnings owing to a reduced recovery in Reliance’s refining and chemical margins, slower pace of ARPU hikes, amongst other issues.
“With our estimates ~25% below consensus and RIL’s share price near our fundamental bull case, we maintain an Underperform recommendation,” the report mentioned. Macquarie Group has an ‘Underperform’ rating on RIL considering that May last year.