INSUBCONTINENT EXCLUSIVE:
Mumbai: Even as shares of Reliance Industries (RIL) have scaled new highs, analysts remain upbeat on the prospects of the energy-to-telecom
That, even when there is pessimism surrounding GRM projections
The stock has already posted a stellar performance, having rallied 22.7 per cent so far this year to trade at Rs 1,375, far outperforming
Sensex’s 6.4 per cent gain in the same period.
On March 20, RIL shares hit a record high of Rs 1,386 on BSE
But analysts said the rally has more steam.
On Thursday, Thomson Reuters data showed 10 ‘strong buy’, 16 ‘buy’, 5 ‘hold’ and 2
‘sell’ and 2 ‘strong sell’ ratings on the counter.
HSBC Securities and Capital Markets came up with a buy rating on the stock on
March 18 and raised price target to Rs 1,500 from Rs 1,402 earlier, implying a $10 billion valuation for its retail business
While non-energy investments are now 55-60 per cent of RIL’s consolidated balance sheet with most of this tied up to telecom venture Jio
and organised retail, they now contribute around 25 per cent of Ebitda, which HSBC estimates to rise to 30 per cent by FY21
“Jio is the market leader already and organised retail is in a hyper-growth phase, putting RIL in an opportune position where it could
further scale up both businesses as India’s consumer economy transitions from unorganised to organised retail,” HSBC said.
The analysts
said Reliance Retail is still the fastest growing organised retailer across consumer formats this financial year, and growth may accelerate
as it scales up key formats and launches its digital platform integrating kirana stores.
They have modelled higher revenue growth and
profitability in retail to be offset by lower gross refining margins (GRM) assumptions, leading to an around 8 per cent cut in FY20 earnings
per share (EPS), and thus their FY19-21 estimates change only marginally
“Accelerated growth, clarity in the monetisation strategy for a planned online-offline platform in partnership with the kirana stores,
and improving disclosures could lead to higher growth, a narrower discount and potential share price upside,” HSBC analysts Rakesh Sethia,
Amit Sachdeva and Thomas C Hilboldt said in the note.
“Our value of RIL’s retail business implies revenue growth of 12-15 per cent over
next 10-15 years, which we think it can achieve comfortably considering its presence across consumption categories,” they added.
The
optimism was widespread.
“I think there is more steam in the rally for this counter
There is a structural upside that you are seeing in this counter
They are in the process of monetising their infrastructure assets,” said Deven Choksey, managing director and CEO of K R Choksey
Investment Managers.
“The retail business will be front-ended along with Jio, reaping substantial benefits for the former
All these are going to be big positives for the counter, and I would still recommend a buy,” Choksey said.
Some others beg to differ
While optimism on retail business, along with telecom business was in the air, pessimism surrounding GRMs could be a dampener in the near
term, though long-term outlook remained upbeat
“It is difficult to take a call on the stock price
It is trading above our target price
But there are few things going for the stock
Pet coke gasification, which is expected to start from this quarter and divestment of fibre and tower businesses would strengthen balance
sheet,” said Sudeep Anand, head of institutional research, at IDBI Capital Market Securities.
Anand had a ‘buy’ rating on the stock
with a target of Rs 1,326, which has already been surpassed.
Anand expressed concern that there was a near-term overhang around GRMs, where
the outlook was a bit negative
“However, from a three-year perspective, there are few value drivers for the companies
By the end of this year, the company may divest its retail business,” he said
In a note on March 17, Jefferies maintained its ‘underperform’ rating on the stock, noting the risks of rising EPS and rich
