Global brokerage firm UBS has maintained its "buy" rating on Reliance Industries with an unchanged target price of ₹3,250 apiece, which represents a potential upside of 29 percent from the stock's previous closing price.
UBS believes that investors are not pricing in retail's revenue growth potential from rapid store expansion, e-B2B revenue growth, and private labels. Additionally, the consensus seems to underappreciate the upcoming integrated manufacturing ecosystem for new energy business, it added.
The brokerage expects Reliance to record a consolidated net profit of ₹15,100 crore in Q3 FY23, a 10 percent sequential increase and a 4 percent YoY drop. EBITDA is expected to increase 15 percent year on year to ₹34,100 crore in Q3 FY23, and 9 percent quarter on quarter.
O2C earnings would increase on a quarterly basis (Q3), driven by improved refining margins, though offset to some extent by lower petchem spreads and fuel export taxes
UBS expects the performance of digital (Jio) and retail to remain strong (EBITDA +5 percent QoQ), driving the share of consumer business in segment EBITDA to 49 percent.
Earlier in December, global brokerage firm J.P. Morgan said that the earnings of Reliance Industries would improve starting in CY23. The brokerage has an "Overweight" call on the stock with a target price of ₹3,065 apiece by the end of 2023.
The brokerage believes CY23 will likely be mostly about Jio Financial Services (JFS) as the consumer business (Jio, retail) IPOs are still some time away.
"We currently value JFS at the RIL treasury stock value (1x) and depending on how RIL builds out and scales up JFS (organic/acquisition) will determine how markets value JFS." "Every 1x turns higher on the RIL treasury stock adds Rs.190 to our FV," said J.P. Morgan.
J.P. Morgan views the JFS demerger as a major positive, as it would allow RIL shareholders a direct play on India’s fast-growing digital fintech market via an entity that would be able to leverage RIL’s vast footprint across telecom and retail.
RIL currently has 16,617 stores across formats and categories in its retail business. RIL’s retail business is the industry leader across retail categories. This large footprint gives JFS a material advantage. RIL’s telecom footprint (Jio) and retail footprint should allow for a faster rollout of JFS, it stated.
"New energy" remains the most interesting part of RIL’s longer-term earnings and valuation story, and "we expect RIL to continue to buy and build the various pieces and we do not expect any immediate monetization (via a stake sale similar to Jio/Retail)," said J.P. Morgan.
However, the brokerage trimmed its FY23 EPS estimates by 8 percent and expects FY24 to be better on stable refining, better petrochem, higher E&P, and stronger retail. The diesel export tax and sharp collapse in petrochem spread drove the brokerage's FY23 EPS cut.
Meanwhile, Reliance Industries has emerged as the most valuable listed company in 2022, with a total value of ₹17.25 lakh crore, according to the 2022 Burgundy Private Hurun India 500 list.
30 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.