RIL 46th AGM: Brokerages insipid but keep positive ratings on stock intact

Reliance 46th AGM: The stock would see a significant upside only on listing timelines of the retail and telecom businesses, first announced four years ago in 2019, analysts said

Reliance Industries (RIL) 46th annual general meeting (AGM) did not prompt much action from brokerages, with most of them keeping their ratings and target prices intact on the stock, due to the absence of any concrete near-term plans. 

Analysts maintained ratings from 'hold' to 'buy' given the robust outlook of all RIL businesses and the company’s promise of significant value creation in the next 10 years.  

Also read: Reliance AGM 2023: Isha, Akash and Anant Ambani to join RIL board
 

The new telecom offerings, more possible stake dilution in retail, which is seeing heavy interest from marquee investors, foray into wind power equipment manufacturing, and the plan for AI-ready computing capacity were the noteworthy takeaways, they said.  

The stock, however, which is up around 4 per cent this calendar year versus a 7 per cent gain in BSE Sensex, would see a significant upside only on listing timelines of the retail and telecom businesses, first announced four years ago in 2019, they added.  

Here’s what brokerages said on RIL AGM: 

Jefferies | Buy | Target price (TP): Rs 2,950, highest upside of 21%

Expect chairman Mukesh Ambani to likely spin-off and list Jio and Retail businesses during his current tenure (extended another 5 years). Lower capital expenditure likely in RJio in FY25 with 5G network spending largely behind. Keep earnings estimate unchanged due to limited new information on near-term targets and no major new capital expenditure (capex) being announced. 

Nomura | Buy | TP: Rs 2,925

Expects RIL to competitively price its new wireless broadband offering Jio AirFiber to drive adoption. This would likely compete with Bharti Airtel’s recent pilot of its fixed wireless access (FWA) in Delhi and Mumbai at a monthly tariff of Rs 799, with a minimum six month-plan and a security deposit of Rs 2,500. 

RIL’s aggression in the untapped enterprise offerings space can have a bearing on the industry’s profitability. Jio Financial (JFS) is expected to apply for an insurance licence. As no incremental information was given for its other businesses, JFS’ execution capabilities would be clear only with time. 

Kotak Instiutional Equities (KIE) | Add | TP: Rs 2,600 

Outlook for RIL's key businesses remains robust. Energy segment should benefit from high refining margins, improvement in petchem spreads and rising KG basin production. Expect RJio to continue gaining market share with likely increase in tariffs after the 2024 general elections. Retail growth should sustain at a fast clip, driven by a ramp-up of newly added stores, rising new commerce shares and FMCG foray. 

JM Financial | Buy | TP: Rs 2,900

Net debt concerns are overdone as it expects RIL’s net debt to peak in 2023-24 (FY24) and then decline as capex will moderate to Rs 1.3-1.4 trillion per annum from Rs 2.3 trillion in FY23 and will also be fully funded by internal cash generation. 

Sees RIL’s earnings per share (EPS) to grow at a robust 14-15 per cent CAGR over the next 3-5 years with RJio’s average revenue per user (ARPU) seen rising at 10 per cent CAGR over FY23-28. The key metric is on a structural uptrend given the industry structure and the need to avoid a duopoly market. 

Motilal Oswal Financial | Buy | TP: Rs 2,920 

Sees a 12 per cent CAGR growth in consolidated revenue and EBITDA over FY23-25. Retail, telecom and new energy will be the new growth drivers over the next 2-3 years. 

Value the standalone refining and petrochemical business at Rs 904 per share, RJio at Rs 750 a share, Reliance Retail at Rs 1,485 a share on factoring in the recent stake sale. New energy business is valued at Rs 16 a share on a book value basis.

ICICI Securities | Add | TP: Rs 2,650

Sees RIL’s ambitions as lofty given subdued capital efficiency. With a sharp uptick in capital employed, which remains well ahead of earnings growth, return on capital employed (RoCE) has remained moderate over the last 4-5 years. 

Despite operating earnings growing at 18 per cent CAGR in this period, FCF (free cash flow) has remained muted. Sees solid 18.6 per cent earnings CAGR over FY23-FY25 but wary of muted return ratios and limited FCF yield.