Most brokerages have raised their earnings per share (EPS) estimates and revised their target prices’ on Reliance Industries (RIL) after the company released its September quarter numbers with robust gains in the retail and in Jio business.
Even as some concerns were raised on the company's core business - petchem and refinery - brokerages, broadly, are positive on the stock for the long term horizon.
On October 18, RIL reported the highest-ever quarterly consolidated profit of Rs 11,262 crore in Q2FY20, beating Street expectations.
"The company has reported a record net profit for the quarter. These excellent results reflect the benefits of our integrated Oil to Chemicals (O2C) value chain and the rapid scale-up of our consumer businesses," Mukesh Dhirubhai Ambani, Chairman and Managing Director of the company, said.
After the Q2 quarterly numbers were released, global financial firm HSBC maintained a buy recommendation on the stock, raising the target price to Rs 1,565 from Rs 1,475.
HSBC said RIL's balance sheet deleveraging should accelerate in the coming quarters even as the earnings outlook of the company remains robust.
Nomura, too, maintained a buy recommendation on the stock and raised the target price to Rs 1,785 from Rs 1,575.
The brokerage has raised its earnings estimates on RIL by 7-12 percent, citing that the outperformance of the company may sustain.
Meanwhile, UBS also has a buy call on RIL with a target price of Rs 1,500, while Morgan Stanley has an overweight rating, with a target price of Rs 1,469, on the stock.
Citi Research has a buy recommendation on RIL with a target price of Rs 1,500.
"IMO impact on gross refining margins, progress on 4 ongoing transactions, gasification ramp-up, FTTH traction and IUC developments are the keys for the next two quarters," said Citi in a note.
Macquarie has an outperform call with a target price of Rs 1,380, but Jefferies has an underperform view on RIL with target price raised to Rs 1,060 from Rs 1,025 earlier.
Credit Suisse (CS) has maintained a neutral call on the stock with a target price of Rs 1,210 and said refining margin remained strong and was partly offset by weakness in petrochemical. The brokerage has highlighted a sharp reduction in Jio's capex which was down 40 percent quarter-on-quarter (QoQ).
Brokerage firm Motilal Oswal Financial Services has maintained a buy recommendation with a target price of Rs 1,630.
"We revise the valuation multiple for the core segment of refining and petchem to 8.5 times (from 7.5 times earlier) FY21E EV/EBITDA to factor in the enhanced delayed coker capacity, the widening of crude blend window for maximizing distillate yields prior to IMO and the revival in petchem margins for the company under its flexible feedstock utilisation," said Motilal Oswal.
The domestic brokerage has raised the target price of Reliance Jio to Rs 280 from Rs 250.
Brokerage firm Antique Stock Broking, too, has retained a buy recommendation on the stock with a target price of Rs 1,555.
"We retain our buy rating on RIL, albeit with a revised target price of 1,555, as we roll earnings forward and introduce FY22E. In our view, the conclusion of large investment and eventual reduction of debt would add to positive sentiment," said Antique Stock Broking.
"Expected infusion of capital by Saudi Aramco and BP, would only expedite reduction of debt. In addition, consumers facing business continue to grow in scale and profitability, thereby de-risking the earnings mix," Antique Stock Broking added.
Emkay Global Financial Services has maintained a hold recommendation on the stock with a target price of Rs 1,540.
"We raise our refining EV/EBITDA multiple valuing oil-to-chemicals at $70 billion EV (against $75 billion for Aramco deal). We also reduce FY20/21E Jio capex to Rs 30,000-25,000 crore against Rs 40,000-35,000 crore earlier, though our overall capex and debt levels are largely the same," said Emkay Global.
SBICAP Securities has a buy recommendation on RIL with a target price of Rs 1,670.
"We initiate coverage with a buy rating as we expect the strong growth momentum in telecom and retail business to continue," said SBICAP Securities.
"Our target price implies an FY21E P/E (price-to-earnings ratio) of 13.7 times (3 year average: 13.3 times), FY21E P/B (price-to-book ratio) of 1.9 times (3 year average: 1.5 times) and FY21E EV/EBITDA of 9.8 times (3 year average: 10.1 times)," said SBICAP Securities.
"We take comfort from the company‘s effort to address balance sheet concerns by expediting deleveraging exercise (via InvIT structure for its tower and fibre InvIT and potential stake sale in refining and petchem business to Saudi Aramco), and is targeting to become a zero net debt company by the end of FY21," SBICAP Securities added.
Axis Capital, too, came out with a similar view on Reliance Industries after the company revealed its September quarter numbers. The brokerage has a 'buy' recommendation with a target price of Rs 1,650.
"A combination of diminishing headwinds and rising tailwinds shall drive the growth of Reliance Industries. We expect the stock to double in 4 years to Rs 2,790. Our 1-year SOTP-based target price stands at Rs 1,650," said the brokerage.
As of October 18, the stock is up 26 percent on the BSE in Calendar 2019, in comparison to a 9 percent rise in the benchmark Sensex.
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