Global brokerage CLSA today raised the target price on Reliance Industries’ shares to Rs 1,500 from Rs 1,350, implying an upside of over 21% from yesterday’s closing price of Rs 1,233.25. Meanwhile, Reliance Industries shares jumped to rise as high as 4.1% in the morning trade to its nine-year high of Rs 1,287.
CLSA maintained its ‘buy’ rating on the stock. It cited optimistic commentary by the company management on its telecom venture Reliance Jio, while also raising the valuation multiple on the refining business.
CLSA said in a note that Reliance Jio has told analysts it expects telecom industry revenue to reach $45 bln by the fiscal year 2020-21, while expecting to garner over half the market share.
“While Jio believes voice revenues will shrink materially, this should be more than offset by higher data revenues driven by big rise in data consumption,” CLSA said.
Further, the research and brokerage firm also raised valuations on the company’s telecom, refining and retails businesses. “Jio’s superior capacity advantage may warrant higher EV/Ebitda multiple of 7.5x (earlier 7x) which implies Mar’18 equity value of US$6bn. We also raise multiple of refining to 6.5x EV/Ebitda (vs HP/BP at 7.5x) and retail to 1x EV/Sales (vs 0.5x), which drives our target to Rs1,500,” CLSA said.
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CLSA forecasts Reliance Jio to clock an EBITDA (earning before interest, tax, depreciation and amortisation) of $4 billion in the financial year 2020-21.
Earlier last month, Reliance Jio said it will start charging money from consumers for using its mobile telephony services, which it was offering so far for free. Reliance Industries Chairman Mukesh Ambani had said that Reliance Jio will offer its “prime” customers 1GB data per day with unlimited voice calls for Rs 303 per month, on a one-time payment of Rs 99. By comparison, tariff plans of rival incumbent operators Bharti Airtel, Vodafone India and Idea Cellular offer about 1-2 GB data per month with unlimited voice calling for about Rs 340-350.
Jal Irani, Senior VP at Edelweiss Capital Services, had also recently said that Reliance Industries is also expected benefit a lot in the near future as the company’s projects under commissioning will significantly add to free cash flows. “There are $40 billion worth of projects in commissioning phase, which doubles their (RIL’s) productive assets,” Irani said, adding, “We forecast RIL’s free cash flows to rocket from next year as the quarterly capex trend is plummeting.”