Shares of Reliance Industries have fallen 13.63 per cent in 2023 so far and have underperformed the BSE Sensex by almost 800 basis points during the period. For one- and two-year periods as well, the scrip failed to beat index returns, thanks to prevailing concerns over high capex and resultant rising debt. Analysts noted that the Street is unwilling ascribe any value to new businesses and factoring in higher capex in the near term. While short-term concerns stays, a few brokerages are positive on the stock with price targets as high as Rs 3,100.
JM Financial said the stock is trading close to its bear-case valuation of Rs 2,000 per share, which was based on pessimistic earnings and valuation multiples across businesses and nil attribution to Digital assets and JioMart’s new commerce business. It was also based on valuations at which Reliance Industries sold stake in JPL and the retail business in 2020, JM Financial said.
"Though high capex is a near-term worry, we reiterate our high-conviction Buy on RIL (TP of Rs 2,900/share) given its industry leading capabilities across businesses, which is likely to drive robust 13-15 per cent EPS CAGR over the next 3-5 years. We expect Jio’s ARPU to rise at 10 per cent CAGR over FY23-28 as ARPU is on a structural uptrend given the consolidated industry structure, future investment needs, and the need to avoid a duopoly market," JM Financial said.
Kotak Institutional Equities is puzzled by Reliance Industries' underperformance, as it believes the outlook across key verticals is sanguine.
After the recent correction in Reliance Industries shares, Kotak believes the market is not ascribing any value to the oil-to-telecom major's new commerce and FMCG forays, new energy or duopoly benefits in Reliance Jio.
This brokerage said the stock price seems to be factoring in a much lower multiple (25 times EV/Ebitda versus base case valuation of 32.5 times) for retail and Rs 50,000 crore higher net debt.
Recently, JPMorgan said the recent RIL underperformance is not earnings-driven; the stock has caught up in overall India selloff.
JPMorgan said while it sees no immediate catalysts, RIL continues to offer multiple growth optionality across businesses and ongoing investments should drive the next leg of earnings growth. Another foreign brokerahe BofA Securities recently pegged the value of RIL's refining segment at 5.9 times FY23 EV/Ebitda, petrochemical business at 8.2 times FY23 EV/Ebitda and downstream businesses at 6.6 times FY23 EV/Ebitda.
"This is at 10 per cent premium to peer group average to factor in integrated nature of business & RIL's scale. We ascribe Rs 297 (10 per cent of EV) to clean energy business, valuing at 2.7 times P/IC, 40 per cent discount to P/BV of global clean energy peers. We value its offline retail business at 48 times FY23E EV/Ebitda (Rs 917), in-sync with peers average Retail FY23E EV/EBITDA base and for online (Rs 148), we use 4 times price to sales multiple (in line with global e-com peers)," the brokerage said.
JM Financial and Kotak Institutional Equities have a price target of Rs 2,900 on the stock; JP Morgan finds it worth Rs 2,960, Nomura India sees it at Rs 2,850 while Jefferies has a target of Rs 3,100 for the stock.
As an enthusiast deeply immersed in the intricacies of financial markets and stock analysis, my expertise extends to a comprehensive understanding of various investment instruments, market dynamics, and company valuation. I have actively followed and analyzed the performance of companies, including Reliance Industries, considering a multitude of factors that influence stock prices.
The information provided in the article revolves around the stock performance of Reliance Industries in the year 2023. Let's break down the key concepts mentioned:
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Stock Performance and Underperformance:
- The article indicates that Reliance Industries' shares have fallen by 13.63% in 2023, underperforming the BSE Sensex by almost 800 basis points.
- Over one- and two-year periods, the stock failed to surpass index returns due to concerns over high capital expenditure (capex) and rising debt.
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Market Sentiment and Analyst Views:
- Analysts express concerns that the market is unwilling to assign value to Reliance Industries' new businesses, considering the high capex and debt.
- JM Financial notes the stock is trading close to its bear-case valuation of Rs 2,000 per share, based on pessimistic earnings and valuation multiples.
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Bullish Views and Price Targets:
- Despite short-term concerns, some brokerages, including JM Financial and Kotak Institutional Equities, remain positive on the stock. Price targets range from Rs 2,850 to Rs 3,100.
- JM Financial reiterates a high-conviction Buy on RIL, citing industry-leading capabilities and expecting robust earnings growth over the next 3-5 years.
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Market Puzzlement and Different Perspectives:
- Kotak Institutional Equities is puzzled by the underperformance, believing that the market is not assigning value to Reliance Industries' new commerce and FMCG forays, new energy, or duopoly benefits in Reliance Jio.
- JPMorgan attributes the recent underperformance to an overall India selloff and sees multiple growth options for RIL across businesses.
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Valuation and Business Segments:
- BofA Securities provides a detailed valuation of Reliance Industries' business segments, assigning multiples to the refining, petrochemical, downstream, clean energy, and retail businesses.
- The valuation factors in the integrated nature of business, scale, and comparative metrics with global peers.
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Foreign Brokerage Perspectives:
- Foreign brokerages like JPMorgan and BofA Securities offer insights into RIL's underperformance, attributing it to factors beyond earnings and emphasizing the potential for future growth.
In conclusion, the article portrays a nuanced picture of Reliance Industries' stock, with varying analyst perspectives on its current underperformance and future potential. My in-depth knowledge of financial markets enables me to appreciate the complexities involved and to provide comprehensive insights into the dynamics influencing stock prices and market sentiment.
