Reliance Industries gets rating upgrade, JP Morgan turns bullish, sees 22% potential rally in 1-year

JP Morgan India has upgraded its rating on Reliance Industries Ltd (RIL) to ‘overweight’ from ‘neutral’ earlier, and has pegged a price target of Rs 3,170 apiece.

Mukesh Ambani, Reliance Industries Ltd, RIL
In 2021, Mukesh Ambani's RIL underperformed the Nifty 50, as RIL gained 19 per cent as compared to a 24 per cent rise in Nifty. Image: Reuters

JP Morgan India has upgraded its rating on Reliance Industries Ltd (RIL) to ‘overweight’ from ‘neutral’ earlier, and has pegged a price target of Rs 3,170 apiece, implying a potential upside of over 22 per cent over the next 12 months. On Thursday, RIL share price was trading at Rs 2,658.60 apiece, up 2.4 per cent. It also expects RIL’s outperformance to the NSE Nifty 50 to continue given the upside risk to consensus earnings estimates. On a year-to-date (YTD) basis, Reliance Industries has outgunned the Nifty 50 index by 21 per cent. The brokerage firm said that the oil to telecom conglomerate is among the few large companies in India with a positive earnings revision cycle ahead, given the strong refining and gas environment. 

In 2021, Mukesh Ambani’s RIL underperformed the Nifty 50, as RIL gained 19 per cent as compared to a 24 per cent rise in Nifty. JP Morgan has raised its earnings per share estimate for RIL by 19 per cent for FY 2022-23 and 17 per cent for FY 2023-24. “Our earnings estimates imply a sharp pullback in diesel and gasoline cracks from current record level, but RIL remains among the best positioned refiners globally, given: a) ability to buy and process arbitrage barrels; b) diesel heavy slate; and, c) export focus. RIL’s upstream business should benefit from rising domestic gas prices and higher volumes,” it said.

The brokerage firm had earlier expected the global Tech sell-off to impact RIL’s consumer valuations negatively (Jio, Retail) and cancel out the near-term earnings upside. It said that  RIL’s consumer valuations have held up well and with likely higher ARPU and further ramp-up of Retail footprint, combined with Renewables business optionality, the Non Energy Business valuations should hold up going forward even as Consolidated reported earnings should improve materially from here on Refining and E&P.

What to expect from RIL AGM 2022?

RIL’s AGM tends to be announcement-heavy and expectations run high in the run-up to the AGM and this year (like the last 3) centers on concrete timelines being announced for IPOs of the Consumer business, the brokerage firm said. “We do not expect any concrete timelines from this year’s AGM on the Consumer businesses IPOs (Jio, Retail), even though media reports (BL) have talked about IPOs of these businesses,” it added.

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