Despite disappointing earnings global brokerage house UBS Securities has upgraded Reliance Industries to buy from neutral with a 12-month price target of ₹2,900- ₹3,150.
The firm announced its results on July 24 post market hours and fell over 3 percent the next day. However, since then, the stock has remained flat.
While many brokerages have cut the target price as well as FY23 earnings estimates for the firm, global brokerage house UBS believes that the key to Reliance Industries' stock price performance drivers is new investment opportunities to deploy large cash flows profitably.
With India's commitment to net-zero carbon emissions by 2070, the brokerage estimates it as a $20 trillion opportunity in renewables, batteries and hydrogen.
"Our analysis of RIL's New Energy business suggests it can invest around $36 billion in new energy this decade. However, we think investors have yet to appreciate this, given the lack of details on capacity, capex, earnings drivers etc," UBS said in the report.
It expects this opportunity could create $35 billion value by FY30, which discounted back to FY24, adds ₹234/share to UBS' SOTP (sum of parts) valuation. It has also factored in the impact of fuel export taxes (reducing near-term oil-to-chemicals [O2C] earnings), which seems priced in, while removal of export taxes provides upside potential, said the brokerage.
The company reported a 46 percent YoY jump in its June quarter, missing analyst estimates to ₹17,955 crore in the April-June quarter compared to ₹12,273 crore in the year-ago period.
Sequentially, net profit was up 11 percent but lagged analyst estimates who had factored that the company would have captured the biggest discount available on Russian crude and exported all fuel when margins peaked.
The oil-to-telecom major said its revenue for the quarter jumped 54.54 percent to ₹2,23,113 crore from ₹1,44,372 crore in the same quarter last year.
However, Reliance posted a record quarterly consolidated EBITDA at ₹40,179 crore, up 45.8 percent year-on-year. Of the ₹12,629 crore increase in EBITDA (earnings before interest, taxes, depreciation and amortization), 76 percent or ₹9,597 crore came from oil refining and gas production.
UBS further noted that the firm is targeting a 20GW solar photovoltaic (PV) manufacturing capacity which would be integrated with 90ktpa polysilicon from Jamnagar (supported by the company's environmental clearance proposal). The New Energy division can offer grid-scale power with BESS (battery energy storage system) to its other businesses on fixed returns, consuming over 50 percent of a capacity captive for the next few years, it stated.
The UBS also expects the retail and telecom ventures to grow faster and has upgraded Reliance Industries' global depository receipts (GDR) to Buy as well, and raised its target price from $77.33 to $78.75.
Meanwhile, ICICI Securities cut the firm's target price to ₹2,710 from ₹2,865 earlier. "Prospects for the rest of FY23 have turned cloudy due to a sudden downturn in Asian GRMs, muted petchem spreads and the overhang of the additional export duties imposed," it noted.
Edelweiss also expects RIL's refining margin to remain subdued in the near term as GRMs plunged amid recession fears.
"Exports duty levy should further squeeze profits and have about a $4 GRM impact. Upstream shall nearly match retail EBITDA by FY24E driven by high gas prices and faster-than-expected KG-D6 ramp-up. New energy (recent upgrade) plan towards green H2 shall drive valuation re-rating, besides huge synergies with the existing O2C business," it said.
Share price trend
The stock has fallen around 7 percent in July so far and is up just 2 percent in 2022 YTD. In the last 1 year, it has advanced 16 percent as against a 5 percent rise in benchmarks. However, it has given steady returns to its long-term investors, rising 3 times (200 percent) in the past 5 years.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.