Reliance share price tanks 4% as Mukesh Ambani’s RIL’s Q1FY23 profit misses estimates; buy, sell, hold?

Research and brokerage firms see up to 28 per cent upside potential in RIL share price, as they believe RIL’s new energy business may unleash the next leg of growth

RIL, Reliance, Reliance Industries, Mukesh Ambani
Image: Reuters

Reliance Industries share price fell nearly 4 per cent to Rs 2,403.95 apiece intraday on BSE on Monday after the company’s fiscal first quarter consolidated net profit missed street estimates. The stock closed at Rs 2,420.15 apiece, down 3.31 per cent. Mukesh Ambani’s RIL reported 46 per cent on-year jump in net profit to Rs 17955 crore, against the expectations of 100 per cent rise in net profit. Last year in the April-June quarter, RIL had reported a net profit of 12,272 crore. Research and brokerage firms see up to 28 per cent upside potential in RIL share price from last close, as they believe RIL’s new energy business may unleash the next leg of growth.

Chairman and Managing Director Mukesh Ambani said that despite significant challenges posed by the tight crude markets and higher energy and freight costs, O2C business has delivered its best performance ever. The business delivered its best-ever quarterly performance with all-time-high revenue and EBITDA. Moreover, RIL’s telecom subsidiary, Reliance Jio reported a net profit of Rs 4,335 crore for the April-June quarter of the current financial year, rising 23% from a year ago, but missing street estimates. It’s standalone revenue for the quarter under review stood at Rs 21,955 crore.

Motilal Oswal Financial Services
BUY | Target Price: Rs 2,785 | Upside Potential: 11%

Analysts at Motilal Oswal valued the Refining and Petrochemical segment at FY24E EV/EBITDA of 7.5x, arriving at a valuation of INR721/share for standalone business. It ascribed an equity valuation of Rs 960 per share to RJio and Rs 1,173 per share to Reliance Retail, factoring in the recent stake sale. Motilal Oswal’s higher EV/EBITDA multiples of 39x for Retail and 18x for Digital Services underscore new growth opportunities in the Digital space and steady market share gains. It reiterated buy with a TP of Rs 2,785 apiece. “We expect consolidated Revenue/EBITDA to clock 13%/15% CAGR over FY22-
FY24. We have cut our FY23E EBITDA/PAT by 6%/10% led by 9%/11% decline in estimates of standalone (O2C) EBITDA/PAT, respectively,” it said. The brokerage firm has build in a capex of Rs 350b per year in the standalone business, considering RIL’s investment in new-age greener businesses (such as solar energy and a hydrogen ecosystem in India).

Edelweiss Research
BUY | Target Price: Rs 3,205 | Upside Potential: 28%

Analysts at Edelweiss reckoned RIL’s refining shall remain subdued in the near term as GRMs plunged to USD5/bbl (Jun: USD30) amid recession fears. It said that exports duty levy may further squeeze profits—about USD4 GRM impact. “Upstream may nearly match retail EBITDA by FY24E driven by high gas prices and faster-than-expected KG-D6 ramp-up. New energy (recent upgrade) plan towards green H2 shall drive valuation re-rating, besides huge synergies with the existing O2C business,” it added. It also added that windfall tax on High Speed Diesel or ATF exports remains a key risk to earnings in the near term. “In the long run, we argue RIL shall benefit greatly from Golden Era of Refining. RIL’s new energy business shall unleash the next leg of growth, besides aiding its conventional business (New energy upgrade),” it said.

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