ICICI Direct Upgrades This Bluechip Stock From Hold To Buy, Recent Acquisition To Drive Growth

ICICI Direct initiates coverage on Reliance Industries Limited (RIL) with a buy call to the stock with a target price of Rs 3,050/share. According to the given target price, the stock could give a potential upside of up to 21% from its current level. It has a large cap bluechip stock with a market capitalisation of Rs 17,37,101 crores.

RIL is one of India's biggest conglomerates with a presence in oil refining & marketing and petrochemicals, oil & gas exploration, retail, digital services, media, etc, making it a well-diversified business entity. At the EBITDA level in FY22, O2C and oil & gas contributed 49% while retail, digital and others contributed 10%, 34% and 7%, respectively.

Stock Outlook & Returns

The stock of RIL is currently trading at Rs 2,523.15/share on NSE, down 2.12% from its previous close of Rs 2,577.80/share. The has recorded its 52 week high level on 29 April 2022 at Rs 2,856.15/share, and 52 week low on 8 March 2022 at Rs 2,180, respectively. It has given 5.14% positive return in the past 3 months. Over the past 1 year, it gave 8.45% positive return. In the past 3 years, it gave a 63.23% positive return. Over the 5 years, it gave 178.68% multibagger return.

 

Update

Reliance Retail and Jio to be growth drivers in near to medium term.

1. Reliance Retail has been one of the fastest, largest growing retailers in recent times. In FY18-22, it recorded a staggering 30% revenue CAGR with sales worth nearly Rs 2 lakh crore in FY22.The company bolstered its offering and continued to fill white spaces through acquisitions and spent nearly Rs 10000 crore in FY22. It's recent acquisition of Metro Wholesale business (B2B) for a consideration of Rs 2850 crore (0.4x EV/sales) would further strengthen its backend supply chain with accelerated growth in JioMart Kirana orders (up 4x YoY) and on-boarding of new HoReCA clients.

2. The 5G launch has begun for Jio in the last couple of months and is likely to reach pan-India by December, 2023. Superior spectrum portfolio along with superior digital ecosystem offering lends Jio a competitive advantage even in 5G (as seen in 4G foray). We expect ARPU, EBITDA of Jio to grow at ~12%, ~22%, respectively, over FY22-25E.

3. Singapore GRMs, which had declined at the start of Q3, have started improving amid rise in product cracks and are at ~US$9/bbl. This would likely improve Reliance's GRMs and its refining segment earnings. The company announced capex plans worth Rs 75000 crore in petrochemicals.

Buy for a target price of Rs 3,050/share

Long term prospects and dominant standing of RIL in each of its product & service portfolio provide comfort for long term value creation. RIL's consumer business will be the growth driver, going ahead. "We revise our rating on the stock from HOLD to BUY. We value RIL at Rs 3050 on an SoTP basis," the brokerage has said.

Key triggers for future price performance

Increment value accretion from 'digital ecosystem' that will be captured at the Jio Platforms (JPL) level. Steady FCF generation in retail segment to enable it to maintain debt at lower levels & improve its ability to invest in future inorganic opportunities.

 

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.