ICICI Securities Recommends 'Add' This Multibagger Bluechip Stock For Potential Upside

Stock Outlook

On NSE, the stocks of the company opened at Rs 2,617 apiece, after a fall of 0.26%, the stocks are currently trading at Rs 2,607.10 apiece. The current market price is Rs 474.8 above the 52 week low level of Rs 2132.30 and Rs 249.05 below the 52 week high of Rs 2,856.15.

The TTM PE ratio of the stock is 26.59 and the P/B ratio is 2.08, respectively. TTM EPS is Rs 98.12. While the dividend yield is 0.31%. The face value is Rs 10. Its ROE is 7.78%. 

Returns on Investment

Over the week, the stocks of the company gave a negative return of 1.26%. Whereas, in the past 1 the stocks gave a positive return of 3.86%. Over the past 1 year, the stocks surged and gave a positive return of 21.65%. on long-term investment tenure, the stocks gave multibagger returns. In 3 years, the stocks surged 109.61%, giving multibagger returns. Whereas, in the past 5 years, the stocks gave a whooping 235.03% multibagger returns.

Earnings mix transformation continues

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 the 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 7.9xrespectively.

Capex remains ahead of estimates

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 remained well ahead of earlier estimates of Rs500bn-600bn over FY21-FY22, averaging more than Rs1trn and touching an all-time high of Rs1.45trn for FY22. The capex includes a sizeable Rs48.7bn interest capitalised for the year vs Rs45.9bn capitalised in FY21.

Gross borrowings jump 13% YoY

Despite the stronger profitability and inflow from the strategic sales/rights issue over FY21-FY22, gross long-term debt has risen by Rs414bn YoY to Rs3.6trn. This includes deferred payment liabilities rising by Rs183bn for the year. Net interest costs however declined, thanks to a refinancing of US$9bn of debt during the year, which has reduced the effective cost of debt. Overall foreign debt remained at 39% of overall debt, same as in FY21.

Investments have jumped across businesses

RIL has continued to aggressively invest across new business segments, with a Rs28.1bn investment in Sterling & Wilson Renewable Energy and Rs55.5bn in Reliance New Energy. Real estate and project management too saw big jumps, with Rs100bn invested in convertible preferential shares of RIL 4IR Realty and Rs200bn in fresh convertible preferential shares of Reliance Projects and Property Management Services.

FY22 annual report: Key takeaways

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 the 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 Rs1.4trn, in FY22. Material capex of Rs 827bn in digital services and Rs298.7bn in retail were key reasons for the weakness in return ratios.

Brokerage Reiterate ADD with target price of Rs 2,805/share

Despite the inflow of Rs2.6trn over the past 2 years via the unlocking of value in RJio and retail, as well as the rights issue of Rs529bn, net cash declined by Rs135bn in FY21 and increased by only Rs178bn in FY22. FCF yield, therefore, remained muted at 0.5% in FY22. Reiterate ADD, with a revised SoTP-based target price of Rs2,805/sh.

About - Reliance Industries Limited

Reliance Industries Limited (RIL), is a privately owned Indian conglomerate that operates in petrochemical production and refining, telecommunications, textile, retail, marketing, and other industries. RIL was the first privately owned Indian company to enter the Fortune 500. Headquarters are in Mumbai.

The company operates world-class manufacturing facilities across the country at Allahabad, Barabanki, Dahej, Hazira, Jamnagar, Nagothane, Hoshiarpur, Nagpur, Naroda, Silvassa, Patalganga, and Vadodara. Reliance Industries' activities span hydrocarbon exploration and production petroleum refining and marketing petrochemicals retail and telecommunications. The petrochemicals segment includes the production and marketing operations of petrochemical products. The refining segment includes production and marketing operations of petroleum products. The oil and gas segment includes the exploration development and production of crude oil and natural gas. The other segment of the company includes textile retail business and special economic zone (SEZ) development.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. 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 check with certified experts before taking any investment decision.