Helped by Reliance Retail and other segments, Jefferies sees significant upside for Reliance Industries.
Mukesh Ambani’s retail venture Reliance Retail is now worth $100 billion in equity value (about Rs 7.2 lakh crore), according to global investment bank Jefferies. In a recent report, analysts at Jefferies ascribed a $100 billion equity value to Reliance Retail while pinning its enterprise value at $93 billion. “We find Reliance Retail (RR) well-positioned to ride the strong organized retail opportunity with its widespread presence across grocery, apparel and electronics,” the report said. The retail unit of RIL is the largest organised retailer in India with a retail area of 30mn+ sq ft.
Of the value ascribed to Reliance Retail, the core retail business is valued at $71 billion, connectivity business at $4 billion, while the e-commerce segment is valued at $19 billion by Jefferies. RR is being looked at as a retail behemoth and a budding challenger in the e-commerce space.
Reliance Retail growing fast
“Reliance’s retail segment is growing at a much faster pace than the energy business, which has increased its salience in RIL’s consolidated revenues over the past few years,” the report said. Reliance Retail had a 6% contribution to in revenue in FY2016, now the same has zoomed to 20%. The retail segment has a diversified presence across consumer electronics, fashion and grocery, unlike peers who are mostly focused on specific formats. The oil-to-conglomerate RIL owns 85% share in the retail unit, leading to 37% to overall RIL SoTP, according to Jefferies.
Helped by Reliance Retail and other segments, Jefferies sees significant upside for Reliance Industries. Seeing positives ahead, the brokerage firm highlighted several reasons for investors to buy RIL shares. Here, the key triggers for RIL include O2C stake sale, GRM recovery, tariff hike in Jio, the possible listing of Jio, and a banking license for RIL. Jefferies also sees RIL’s partnership with Facebook and Google as a reason to buy the stock.
Stock price expectations
The brokerage firm sees a massive 24% upside for RIL shares from current levels. In the base case scenario, the stock is expected to jump to Rs 2,600 apiece. Here, SOTP valuation implies 12x one yr fwd EV/Ebitda. 22% Ebitda Cagr in Retail, 9% Ebitda Cagr in refining, and 2% Ebitda Cagr in petrochemical. Jefferies expects RIL shares to gallop to Rs 2,900 per share if the strategic sale of O2C business re-rates multiples, telecom consolidation speeds up and Jio goes for listing. On the downside, in case of a lower ARPU, weak refining margins, and elevated cash-burn is expected to take the stock down to Rs 2,000 apiece.