Reliance Ind extends rally, surges over 5% in two days; stock hits new high

Shares of Reliance Industries (RIL) hit a new high of Rs 2,722, gaining 3 per cent on the BSE in Thursday's intraday trade, having surged 5.5 per cent in the past two trading days. On Wednesday, RIL's stock surpassed its previous high of Rs 2,620 touched on July 20 last year.

According to media reports, global brokerage firm Goldman Sachs has revised upwards its price target for RIL from Rs 2,660 to Rs 2,885, even as it lowered the Ebitda forecast.

Meanwhile, RIL has outperformed the market by surging 11 per cent in the past one month, as compared to 2.6 per cent rise in the S&P BSE Sensex. However, in the past six months (down 1.8 per cent) and 1-year (up 7.6 per cent), RIL has underperformed the market. In comparison, the benchmark index rallied 10 per cent in the past six months and 19.4 per cent in the past one year.

RIL saw a strong 31 per cent and 27 per cent year-on-year (Y-o-Y) in Ebitda/PAT in the September quarter (Q2FY24) driven by a 36 per cent Y-o-Y jump in OTC segment Ebitda to Rs 16,280 crore, and continued momentum in Upstream, retail, and digital services.

Analysts at ICICI Securities expect strong momentum to continue in the December quarter (Q3F24) with higher premiums to Singapore gross refining margins (GRMs), and decent petchem spreads. Other verticals (Jio, Upstream, retail, and digital) are expected to lift consolidated profitability, in addition to the strong performance from the O2C vertical.

RIL's Ebitda (earnings before interest, taxes, depreciation, and amortisation) grew to Rs 1.42 trillion in FY23 (FY22: Rs 1.09 trillion), showing secular growth across the energy (refining, petrochemical and oil and gas), retail, and digital business segment. The growth remained consistent in the first half (April to September) of the current financial year 2023-24 (H1FY24), with its Ebitda rising to Rs 79,100 crore (H1FY23: Rs 69,200 crore).

Meanwhile, RIL aims to increase its 5G footprints on a pan-India basis over the medium term. It has also announced setting up of giga factories across photovoltaic panels, energy storage, green hydrogen, fuel cell system, and power electronics.

"Moreover, RIL aims to fully integrate captive energy requirements at its Jamnagar complex, which includes setting up a renewable energy generation capacity. We believe RIL has sufficient financial flexibility to execute the growth investment plans, which would not have any material impact on the leverage and coverage ratios," India Ratings and Research (Ind-Ra) said in its rationale dated December 29, 2023.

RIL benefits from its diversified income streams from its consumer and energy verticals as a decline in the profitability of one vertical would get offset by growth in other vertical. The company's net debt (excluding supplier's credit and spectrum liabilities) remained high at Rs 1.18 trillion billion in the September 2023 (March 2023:  Rs 1.26 trillion), due to higher capex intensity.

However, Ind-Ra expects a significant decline in the capex intensity on the completion of 5G network roll-out by end-FY24. The company's interest coverage (Ebitda to interest cost) remained robust at 7.3x in FY23 (FY22: 7.4x).