The dip in the stock price, after months of rallying, could serve as an attractive entry point for investors, according to global brokerage and research firm Goldman Sachs.
Mukesh Ambani’s Reliance Industries Ltd (RIL) share price has zoomed nearly 5% since yesterday. This jump comes after the stock underperformed and sat out the rally where Sensex and Nifty soared to fresh highs repeatedly since October. RIL stock is down 17% since the middle of September. This dip in the stock price, after months of rallying, could serve as an attractive entry point for investors, according to global brokerage and research firm Goldman Sachs. The brokerage firm has reiterated ‘Buy’ call on Reliance Industries shares, expecting multiple catalysts for the stock price up ahead.
Catalysts for 2021
New product launches around the e-commerce space, stake sale in the energy business, improving margins in the energy space, and tariff hike for Jio are some of the factors that may help the stock going forward. “Amid the ongoing recovery, RIL Retail has significantly outperformed peers, with revenue continuing to grow despite lower footfall on-year,” the report said. RIL’s retail revenues are expected to grow further in the coming years with forecasted overall core retail revenue CAGR of 40%. “Within e-commerce, we forecast RIL’s online GMV will reach US$35bn in FY25E with a 31% market share,” Goldman Sachs said.
In the commodities space, RIL’s hydrocarbon business is expected to see cyclical growth while the leverage to oil prices could drive strong cash generation. Goldman Sachs says that refining margins could revive in the coming quarters from broader cracks improvement, widening light-heavy differentials from the middle of this year as OPEC production starts to come back, and benefits from the pet-coke gasification project.
Tariff hike awaited
Jio has been aiding growth of Reliance Industries since its launch, now among the top two telecom companies in the country. “We forecast 18mn subscriber (additions) for Jio in 2HFY21E total, but note this could have upside risks if Jio were to launch a low-priced smartphone in the near term,” the report said. Telecom tariff hike is the key catalyst for the firm.
Target price and valuation
Currently, shares of the oil-to-telecom conglomerate trade at Rs 2020 per share. The base case target price of Goldman Sachs of Rs 2390 per share, sees an upside of 18% upside from current levels. “We continue to use 8X CY22E (FY23E) to value the chemical business and 6.5X for refining and marketing; we use EV/EBITDA to value the core refining and (petrochemicals) business, and we use DCF to value the high-growth telecom and retail business (online and offline),” the brokerage firm said.