Reliance Industries share price fell more than half a per cent intraday Monday dragging Nifty, Sensex deep in red, down around 1 per cent in Morning trade. Initially, RIL share price rose 0.26 per cent despite S&P BSE Sensex falling more than 400 points or 0.50% to give up 59,250; and NSE Nifty 50 index declining more than 150 points or 0.48% to 17,600. However, the scrip soon dropped in red. RIL share price settled in red, down 0.3 per cent at Rs 2,606.7 apiece. Reliance shares were last trading at Rs 2,593, down 0.77% on NSE. Analysts at ICICI Securities maintained its positive outlook on the stock and reiterated ‘Add’ rating with a target price of Rs 2,805 per share.
“We are strongly optimistic about the prospects of RIL’s green energy business as well as the strong momentum being seen in consumer business segments over the next 12-18 months. However, we believe current valuation multiples are at a ‘zero things can go wrong’ scenario, one which we do not find tenable,” said analysts in ICICI Direct report. The oil-to-telecom major for the past three years has consistently shown a decline in key return ratios. Dividend payout has also remained low despite strong earnings, they said. “From an investment standpoint, muted return ratios, coupled with higher multiples, which underplay all risks (lower margins, green energy execution/scale/timelines falling short), should give some pause,” the brokerage report added.
Reliance Industries share rating: Buy
Target price: Rs 2,805 | Upside: 7%
“Our valuation ascribes mid-upcycle EV/EBITDA multiples to OTC, peer-leading multiples for RJio, strong EV/EBITDA multiples for retail, and 1.5x capital employed to the ‘new energy’ segment. This delivers a fair value of Rs 2,805 per share, implying around 7.3% upside from CMP. We maintain our ADD rating on the stock,” the brokerage said. Stronger OTC margins, lower capex, stronger ARPU growth in RJio, and faster-than-estimated execution of the green energy plans remain key upside risks for the RIL stock, according to the report.
Key takeaways from Reliance annual report
Earnings mix transformation continues: The share of consumer businesses (retail + digital) in consolidated revenues and EBIT has grown from just 15 and 10% in FY18 to 26 and 42% in FY22 respectively. The change was driven by a material change in size and scale of the digital services and retail segments. Digital services revenue has grown 7.6x in 5 years and retail revenue 2.8x. EBIT for retail and digital services has grown 4.9x and 7.9x respectively.
Capex remains ahead of estimates: Post the completion of downstream expansion and mobility capex by FY21, there was optimism around material FCF generation from RIL over FY22-FY24. However, the capex run-rate has remained well ahead of earlier estimates of Rs 50,000 core-60,000 crore over FY21-FY22, averaging more than Rs 1 lakh crore and touching an all-time high of Rs1.45 lakh crore for FY22. The capex includes a sizeable Rs 4,870 crore interest capitalised for the year vs Rs 4,590 crore capitalised in FY21.
Gross borrowings jump 13% on-year: Despite the stronger profitability and inflow from the strategic sales and rights issue over FY21-FY22, gross long-term debt has risen by Rs 41,400 crore on-year to Rs 3.6 lakh crore. This includes deferred payment liabilities rising by Rs18, 300 crore for the year. Net interest costs however declined, thanks to a refinancing of US$9bn of debt during the year, which has reduced the effective cost of debt. Overall foreign debt remained at 39% of overall debt, same as in FY21.
Investments jump across businesses: RIL has continued to aggressively invest across new business segments, with a Rs 2,810 crore investment in Sterling & Wilson Renewable Energy and Rs 5,550 crore in Reliance New Energy. Real estate and project management too saw big jumps, with Rs 10,000 crore invested in convertible preferential shares of RIL 4IR Realty and Rs 20,000 crore in fresh convertible preferential shares of Reliance Projects and Property Management Services.
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