Reliance Industries share price has slumped more than 5% since yesterday morning, despite Mukesh Ambani’s ambitious new energy plans that will see the company invest Rs 75,000 crore over the next three years. While analysts see the new energy business as the next potential value creation engine for RIL, investors seem unimpressed. Today the stock is down 2.6%, trading at Rs 2,097 per share as the worst-performing stock on the BSE Sensex.
On New Energy business
Kotak Securities – Analysts at Kotak Securities believe RIL’s new energy push will be supported by policy incentives. “We believe RIL’s foray could benefit from policy initiatives to encourage domestic manufacturing of solar energy equipment, such as import duties of 25-40% proposed on solar PV cells and module from April 2022 and incentives under PLI scheme,” they said.
Edelweiss – The move from its traditional cash cow to retail and new energy is believed to be an ESG positive move. “We view this as a significant ESG positive. The market may have reservations in the near term though on the start of a new large, long-gestation venture capital like investment subduing already low RoE in the near term,” analysts at Edelweiss said. New energy is expected to provide the next leg of growth.
Retail and Jio on a hyper-growth trajectory
Emkay Global – RIL’s new JioPhone Next, created in partnership with Google was another major announcement of the AGM. Analysts at Emkay Global see 28% revenue CAGR with margins expanding to 10%+ for the core retail business vs targeted topline growth of 3x in five years.
HDFC Securities – With the help of JioPhone Next and Jio’s additional investment in its network during the year and an additional spectrum, HDFC Securities sees Jio’s EBITDA at Rs 491 billion for FY23E with an ARPU of Rs 157. Mukesh Ambani siad that the retail unit of his conglomerate is on a hyper growth trajectory and should grow at least 3x in the next 3-5 years. “We expect RR’s FY23 EBITDA at Rs 142 billion and value it at an EV of Rs 3,802 billion,” HDFC Securities said.
Stock outlook and target price
Motilal Oswal – The brokerage firm has a ‘Buy’ rating on the stock with a target price of Rs 2,430 per share. “The higher multiple for the Digital business captures the revenue opportunity, potential tariff hikes, and opportunity in the Feature Phone market. The higher multiple for the Retail biz captures the acceleration in store openings, digital commerce, and the new JioMart platform,” they said.
Kotak Securities – Analysts at Kotak Securities have maintained their ‘Add’ rating with a fair value of Rs 2,200 apiece. “. We like the long-term transition roadmap, albeit seeing a limited upside to our estimates and valuation in the near term,” Kotak Securities said.
HDFC Securities – HDFC Securities have maintained their ‘Add’ rating on the scrip with a target price of Rs 2,280 per share, down from its previous target of Rs 2,285. The brokerage firm believes the stock is currently trading at 10.9x March-23E EV/EBITDA and 21.0x March-23E EPS.
Edelweiss – Analysts at Edelweiss have retained their ‘Hold’ rating on Reliance Indsutries. “We argue that RIL’s FAANG-like valuation (Jio Platforms and Jio Retail) is misplaced as O2C and telecom make up ~70% of value,” they said.
Emkay Global – The brokerage firm has maintained its ‘Hold’ rating on the stock but increased the target price to Rs 2,330 per share from Rs 2,060 apiece earlier. Emkay has embed 10% premium to cash to account for the new energy business upside.
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