JP Morgan has retained its overweight rating on Reliance Industries (RIL).
The global research and broking firm maintained its overweight call on the stock price of RIL with a target price of Rs 2,960, an upside of 32 percent from the current market price.
At 11:40 hours, Reliance Industries was quoting at Rs 2,240.20, up Rs 3.35, or 0.15 percent on BSE. It has touched an intraday high of Rs 2,254.95 and an intraday low of Rs 2,202.30.
According to JP Morgan, RIL’s ongoing capex and investments should allow it to scale up its already industry-leading petrochem, telecom and retail segments over the next two years. It is of the view that the stock offers long-term investors an attractive entry opportunity given the multiple catalysts over CY24-25, although admittedly more immediate catalysts appear limited.
“In an increasingly capital-scarce environment, RIL’s core strength of investing large amounts of capital in growth projects is a key positive. New energy is likely a multi-year opportunity but may take over 12-18 months to emerge as a material part of the investment case,” it said.
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Ongoing investments position RIL for growth from FY25:
JP Morgan is of the view that RIL stock is trading 2 percent above its bear case. The stock’s multiple compression in the last year appears to mirror the index derating rather than reflect new stock-specific risks. The FII sell-down means FII holdings stand at six-year lows. Strong order-to-cash (O2C), and exploration and production (E&P) cash flows allow RIL to continue to invest across businesses.
On balance, the brokerage firm believes that earnings assumptions have upside risks. Every $1 difference between crude oil price and the total value of petroleum products (GRM)/$50 per tonne petchem spreads / 10 percent ARPU increase impacts EPS by 5 percent/6 percent/5 percent, respectively.
Retail growth has been strong, on track for $2 billion PAT by FY25:
“Jio’s wireless market leadership continues to expand, but the non-telecom business has been slow to pick up (enterprises, advertising). While near-term retail growth should slow down in line with softer consumer demand, Reliance Retail’s focus and investments on square feet additions, omni-channel distribution, multiple brands/acquisition, own brands focus, large warehousing space additions and scaling up new commerce/Jio Mart/FMCG is positive,” JP Morgan added.
Investment Thesis:
In CY23 JP Morgan continues to see RIL as a relative outperformer in what could be a sluggish earnings environment overall, but see multiple potential catalysts over CY24-25 to help drive absolute outperformance. It sees continued strength in the refining business, a likely rebound in Petrochem spreads from decadal low levels from China re-opening, and volume growth in E&P – driving earnings growth.
“RIL continues to offer multiple growth optionality across businesses (petrochem, E&P, telecom, retail, financial services, new energy) and ongoing investments should drive the next leg of growth. The company’s ongoing capex/investments should allow it to scale up its (already Industry-leading) petrochem, telecom and retail segments. New energy is likely a multi-year opportunity, but we do not see it as material to the investment case for the next 12-18 mths. We expect this year’s AGM to focus on Jio Financial Services,” JP Morgan added.
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