Reliance Industries (RIL) has been in news recently due to an investment spree in its digital subsidiary Jio Platforms over the last two months. The stock has rallied over 86 percent from its March low of Rs 867.82 to its 52-week high of Rs 1,647.85 that it hit Tuesday.
However brokerages believe that the rally may still continue.
RIL' digital arm,
Jio Platforms, has received combined investment worth Rs 1.04 trillion from social media giant Facebook and a number of leading private equity firms, including Silver Lake Partners and KKR, over the past two months.
And global brokerages remain bullish on RIL stock's prospects.
Morgan Stanley is ‘overweight’ on the stock with the target price at Rs 1,801, while Goldman Sachs has a ‘buy’ call with the target price of Rs 1,755.
Morgan Stanley believes that multiple triggers -- asset sales, pickup in energy cash flows, increased traction in omnichannel retail, and rise in telecom average revenue per user (ARPUs) -- could further drive the stock upwards.
According to Morgan Stanley, the stock has priced in debt reduction on the digital side, but not the recovery in demand amid the COVID-19 pandemic in consumer retail domestically and refined products globally. It said that further debt reduction, play on-demand recovery beyond COVID-19 and digitization can support a re-rating in future.
As per Goldman Sachs, the firm’s grocery retail gross merchandise value is likely to rise to $83 billion by FY29 from $5 billion in FY20. On the refining front, it expects RIL to continue to outperform regional peers/benchmark margins due to a combination of having the highest refining complexity globally, operational excellence and favorable crude sourcing.
As for the telecom arm, it forecasts a medium-term FY20-23 EBITDA CAGR of 42 percent.
"The complexity of RIL’s energy assets together with strong consumer earnings momentum should limit the degree of a sequential decline in earnings and drive a sharp turnaround in 2HFY21," the Goldman Sachs report stated.
"We expect a rapid recovery for RIL’s earnings driven by (1) 55 percent EBITDA growth for telecom business in FY21 on account of higher ARPU, (2) recovery in oil prices and refining margins as supply-demand trends improve in 2HFY21, and (3) turnaround in the retail business as lockdown restrictions are lifted and JioMart adoption rises."
Goldman Sachs also sees multiple triggers of volume normalisation and margin increases across its business supporting EBITDA growth after COVID-19. Deleveraging of the balance sheet should also support multiples and boost earnings CAGR to 23 percent for F20-F23.
However, lower-than-expected refining or chemical margins, volatility in oil prices, lower ARPU, delay in launches of products like JioMart, and higher competitive intensity in the retail segment may hamper its ongoing rally, Goldman Sachs noted.
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