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Add Stocks Of Reliance Industries With Rs. 2804 Target Price, Aggressive Focus On New Energy: ICICI Direct
Top brokerage firm ICICI Direct recommends investors to buy the stocks of Reliance Industries. Commenting on the stock, the brokerage firm said, "RIL has continued to aggressively invest across new business segments, with a Rs. 28.1bn investment in Sterling & Wilson Renewable Energy and Rs. 55.5bn in Reliance New Energy. Real estate and project management too saw big jumps, with Rs. 100bn invested in convertible preferential shares of RIL 4IR Realty and Rs. 200bn in fresh convertible preferential shares of Reliance Projects and Property Management Services."
Stock To Buy: Target Price & Financial Result
The Current Market Price (CMP) of Reliance Industries is Rs. 2614. ICICI Direct has estimated a Target Price for the stock at Rs. 2804. This stock has the potential to give a 7.26% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 1,785,996 crore.
| Stock Outlook | |
|---|---|
| Current Market Price (CMP) | Rs. 2614 |
| Target Price | Rs. 2804 |
| Potential 1 year return | 7.26% |
| 52 week high share price | Rs. 2,856.15 |
| 52 week low share price | Rs. 2,155.60 |
The share of consumer businesses (retail + digital) in consolidated revenues/EBIT has grown from just 15/10% in FY18 to 26/42% in FY22. 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. Additionally, Reliance Jio saw over 130mn new users joining the network and data traffic growing at ~46% YoY to 91 exabytes during FY21-FY22.
Advantages Of The Stock: ICICI Direct
Giving an 'Add' rating to this stock, ICICI Direct mentioned, "A look at Reliance Industries' (RIL) FY22 annual report provides some pertinent insights on the way the company's character has transformed over the past 3-4 years. The fiscal saw record profitability and margins for RIL's consolidated operations, with growing scale of the consumer businesses complemented by recovery in 'oil to chemicals' (OTC) margins as well. However, substantially higher capex across business segments has meant that return ratios have compressed sharply over the past 2 years - overall RoE increased just 28bps and RoCE dipped 57bps YoY, driven by massive capex of Rs. 1.4trn, in FY22."
"Material capex of Rs. 827bn in digital services and Rs. 298.7bn in retail were key reasons for the weakness in return ratios. Despite the inflow of Rs. 2.6trn over the past 2 years via the unlocking of value in Reliance Jio and retail, as well as the rights issue of Rs. 529bn, net cash declined by Rs. 135bn in FY21 and increased by only Rs. 178bn in FY22. FCF yield therefore remained muted at 0.5% in FY22," the brokerage firm added.
Company portfolio
Reliance has evolved from being a textiles and polyester company to an integrated player across energy, materials, retail, entertainment and digital services. Reliance Industries Limited is a Fortune 500 company and the largest private sector corporation in India. However, in FY22, Reliance Industries (RIL) saw a high amount of volatility across its businesses, more so in the oil-to-chemicals (OTC) segment due to the covid crisis and then the breakout of Russia-Ukraine conflict in Q4FY22. Post the completion of downstream expansion and mobility capex by FY21, there was optimism around material FCF generation from RIL over FY22-FY24E. However, the capex run-rate has reached an all-time high of Rs. 1.45trn for FY22. Despite the stronger profitability and inflow from the strategic sales / rights issue over FY21-FY22, gross long-term debt has risen by Rs. 414bn YoY to Rs. 3.6trn.
Disclaimer
The above stock was picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
