1:1 Bonus, 25 Dividends: India's Most Valued Firm Reliance Is High Conviction Stock To ADD; 19% Upside Ahead

Reliance Industries is India's most valued company with a market cap of around Rs 20 lakh crore. This billionaire Mukesh Ambani-backed oil and gas giant is a high-conviction stock with the potential of nearly 19% upside in the near term. It's also among top picks in March 2024.

Giving a technical view, Incred Equities in its March 2024 high-conviction research note said, "Reliance Industries has been one of the strongest Nifty names, with a consistent outperformance since the last few months."

As per Incred, Reliance witnessed a small consolidation after breaking out from a multi-month channel pattern on the weekly charts and recently witnessed a bullish ABC pattern follow-through on the 1%x3 setup on the Point-and-Figure charts.

Further, it added, the cluster target of vertical as well as horizontal count is placed around Rs.3,400 levels. Please note that cluster counts have a far higher possibility of getting achieved, as against normal vertical or horizontal counts.

Key business triggers to watch out for in Reliance in the coming months as per Incred are:

- Incred's analysis indicates that RIL's new energy initiatives are value-accretive and can add ~Rs170bn in EV. R-JIO and retail businesses remain strong.

- Uptick in the global refining cycle to hasten deleverage and drive a 35% EPS CAGR over FY22-24F. The brokerage factored in US$22/bbl GRM against a spot of US$13-15/bbl.

- Incred also believes that in the coming decade, GRM can remain structurally higher than in the last decade.

On valuation, Incred added, "For the consolidated entity, we forecast an EBITDA CAGR of 33% over FY22-24F and a profit CAGR of 35%. The earnings growth will be mainly delivered by the refining segment. Net debt reduction is an added advantage as the company will be able to get extra cash flow generated from refineries."

Accordingly, Incred upgraded RIL to a SOTP-based valuation of Rs.3,369 and upgraded its rating to ADD (from REDUCE earlier). The premature collapse of the refining cycle is the downside risk to our call and target price.

This target price indicates a potential 19% upside in Reliance.

Reliance Share Price:

On March 15, Reliance's share price ended at Rs 2837.25 apiece with a market cap of Rs 19,19,595.15 crore on BSE.

Reliance is currently the 45th most-valued company in the world, and the most valued in India. In dollar terms, its market cap is around $231.60 billion.

In the trading week from March 11-15, Reliance's share dipped by 4.5%, which brings a case of buy-on-dips to fetch double-digit gains. However, YTD, Reliance is up by 10% on BSE. While in a year, the stock has advanced by over 38%. In 5-years of performance, Reliance has become a multi-bagger with gains of over 131% to date.

Reliance Latest Big Deal:

Recently, Reliance, Viacom 18 Media, and The Walt Disney Company signed a binding definitive agreement to form a joint venture ("JV") that will combine the businesses of Viacom18 and Star India.

Under the deal, Reliance has also agreed to invest approximately Rs 11,500 crore into the JV for its growth strategy. The transaction values the JV at Rs 70,352 crore (~US$ 8.5 billion) on a post-money basis, excluding synergies. Post completion of the above steps, the JV will be controlled by RIL and owned 16.34% by RIL, 46.82% by Viacom18 and 36.84% by Disney.

Reliance Corporate Affairs:

Since the 2008 recession period, Reliance has rewarded its investors with bonus issues and dividends.

Bonus Issue: The first bonus issue by Reliance was of 1:1 ratio in November 2009. A similar bonus issue was later carried out in September 2017.

Dividends: In the last 12 months, Reliance has delivered dividends up to Rs 9 per share. It currently has a dividend yield of 0.32%. As per Trendlyne data, the company paid up to 25 dividends since April 2001.

Reliance Earnings:

During Q3FY24, Reliance's net profit, on a consolidated basis, stood at Rs 19,641 crore registering a growth of 10.9% YoY. While gross revenue stood at Rs 248,160 crore, logging a single-digit growth of 3.2% YoY. Meanwhile, its EBITDA stood at Rs 44,678 crore up by 16.7% YoY with a margin of 18% which expanded by 210 bps.

However, in Q3, O2C EBITDA saw muted growth because of planned maintenance and inspection shutdown. Oil & Gas business posted an EBITDA of Rs 5,804 crore, up by 49.6% YoY.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, 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.