Reliance Shares Rally 2.5%, Investors Add Over Rs 38,300 Crore Wealth After Q2: Should You Buy This Oil Giant?

Billionaire, Mukesh Ambani's Reliance Industries (RIL) share price was on the roll, defying the volatile market and breaching the Rs 2,300 mark while registering as much as over 2.5% upside on Monday so far. Sharp buying in RIL has kept bears off the bay in both Indian benchmarks and oil & gas sectoral indices. India's largest company in terms of market share recorded over Rs 38,300 crore worth of wealth in just a few hours of the current trade.

Reliance is the top gainer on both Sensex and Nifty 50. On BSE, the heavyweight stock skyrocketed by 2.5% to touch an intraday high of Rs 2,321.90 apiece with an m-cap of somewhat Rs 15,70,911 crore. Currently, the stock trades near its intraday high of Rs 2,320.55 apiece, with a market cap of over Rs 15.70 lakh crore.

Compared to the previous session where RIL shares stood at Rs 2,265.25 apiece with a m-cap of over Rs 15,32,595.88 crore -- the oil & gas giant witnessed a surge of over Rs 38,300 crore on October 30th so far.

The stellar buying comes after Reliance's September quarterly earnings for FY24 which was operationally strong.

In Q2FY24, RIL earned a consolidated net profit of Rs 19,878 crore, registering a growth of 29.7% YoY, while EBITDA also recorded a robust growth of 30.2% YoY to Rs 44,867 crore. EBITDA margins accelerated by 390 bps to 17.5% in Q2FY24 as against 13.6% in Q2FY24. However, the company's revenue saw a timid performance to Rs 255,996 crore, up by a meagre 1.2% YoY.

The company's CAPEX for the quarter was at Rs 38,815 crore ($ 4.7 billion) with continuing accelerated investments in pan-India 5G roll-out.

Talking about the earnings, analysts at Prabhudas Lilladher said, "Reliance Industries (RIL) consolidated revenue grew 12% QoQ to Rs 2,319 bn (PLe: Rs 2,371 bn). EBITDA rose 8% QoQ to Rs 409.7 bn (PLe: Rs 436.6 bn) while PAT grew 9% QoQ to Rs 173.9 bn (PLe: Rs194.2 bn). Retail EBITDA grew 32% YoY led by grocery and fashion/lifestyle. O2C EBITDA grew sharply by 63% YoY led by strong petrol and PVC margins, optimized feedstock sourcing and lower SAED. ARPU stood at Rs 181.7 while total subscribers stood at 459.7mn. The stock is currently trading at 11.4x EV/EBITDA."

Is there more steam left in this oil giant, and should investors buy it?

Prabhuda note said, "We maintain BUY rating with a TP of Rs 2618, based on SoTP valuing the standalone business at 7.5x FY26 EV/EBITDA), Jio at 15x FY26 EV/EBITDA and Retail at 37x FY26 EV/EBITDA."

Meanwhile, Motilal Oswal's note said, "We value Reliance Retail's core business at 40x EV/EBITDA on FY25E and connectivity at 5x to arrive at our valuation of INR1,539. Reliance Retail's value in RIL shares comes to INR1,353 (for its 87.9% stake). Our premium valuation multiples capture the opportunity for rapid expansion in its retail business and the aggressive rollouts of the digital platforms."

While Motilal marginally raised its FY24/FY25 estimates for RJio factoring in 11%/ 15% revenue/EBITDA CAGR during FY23-25. RJio is valued at an EV/EBITDA multiple of 12x on FY25E EBITDA. The potential tariff hikes, market share gains from VIL, and opportunity in Digital offer an option value of INR150 (Exhibit 15), arriving at a valuation of INR760/share (adjusted for its 66% stake).

Further, Motilal said, "Using SOTP, we value the Refining and Petrochemical segment at 7.5x FY25E EV/EBITDA to arrive at a valuation of INR878/share for Standalone. We ascribe an equity valuation of INR760/share to RJio and INR1,353/share to Reliance Retail and INR16/share towards the new-age business. We reiterate our BUY rating with a TP of INR2,760."

Moreover, Kotak Institutional Equities has upgraded its outlook on Reliance to Buy with a target price of Rs 2,725.

Kotak's note said, "Our FY2024E EBITDA is largely unchanged as increase in retail EBITDA is offset by marginal cut in petchem and E&P. Our FY2025-26E EBITDA increases by ~2%/5% as we build contribution from the recent Jio AirFiber launch (15 mn FWA subs at an average revenue per user of Rs749 by FY2026) and also higher margins in Reliance Retail."

Finally, Kotak's note added, "We revise our FV upwards to Rs2,725 on increase in contribution from R-Jio (~Rs49/share EV accretion from FWA launch), Retail (higher EBITDA) and also roll-forward of valuations to Sep 2025 (earlier Jun 2025). Outlook for each of RIL's key segments remain robust. With R-Jio's pan-India 5G rollout near completion, we believe capex intensity should decline and focus will shift towards 5G monetization. The recent Jio AirFiber (FWA) launch is the first step towards 5G monetization and with rising subscriber base and consumer engagement on 5G, we believe there is a case to raise tariffs soon. With a ~15% decline since recent July-2023 peak, risk-reward seems more attractive. We upgrade RIL to BUY with revised FV of Rs2,725 (earlier Rs2,600)."

Additionally, JM Financial believes concerns on debt are overdone as it expects RIL's net debt to peak in FY24 and then decline gradually as capex will not only moderate (INR 1.2trln1.4trln p.a. vs. INR 2.3trln in FY23) but, importantly, also be fully funded by a gradual increase in internal cash generation. RIL's guidance on keeping reported net debt to EBITDA below 1x (0.8x in Mar 23) also gives comfort. Be that as it may, we believe RIL could still drive a robust 14-15% EPS CAGR over the next 3-5 years with Jio's ARPU expected to rise at 10% CAGR over FY23-28 with ARPU being on a structural uptrend given the industry structure, future investment needs, and the need to avoid a duopoly market.

Further, JM's note added, "strong growth momentum continues in the company's Retail business as RIL is driving omnichannel capabilities across segments. Hence, we reiterate BUY (unchanged TP of INR 2,900/share). At CMP, the stock is trading at FY25E P/E of 17.4x (3 yr avg: 24x) and EV/EBITDA of 9.8x (3 yr avg: 13.1x). Key risks: a) continued high capex resulting in rising net debt with limited earnings visibility from new projects; b) weak subs addition and limited ARPU hike; and c) weak downstream margins due to macro concerns."

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.