Shares of the Mukesh Ambani-led Reliance Industries (RIL) surged over 2 per cent to Rs 1,290 on Monday after Citibank upgraded the stock from ‘neutral’ to ‘buy’ rating, citing favourable risk-reward dynamics.
The US-headquartered brokerage has raised the target price for the scrip to Rs 1,530, implying an upside of over 18 per cent from the current market price.
“We expect an improvement in refining margins, given China’s reduced export competitiveness. Jio remains well positioned to benefit not just from future tariff hikes but also from any moves to improve data pricing and/or better monetise 5G,” Citi said in a note.
“We forecast a 3-year (FY24-27E) consolidated Ebitda CAGR of 11 per cent for RIL. While this is a decline from the 18 per cent CAGR delivered over the last 9 years (FY15-24), this is well reflected in valuations, in our view, with the stock now trading at 10x EV/Ebitda on a 1-year forward basis, in line with its long-term mean,” it added.
While the report points to softness in the retail segment which may continue for a few more quarters, it believes that there may be a pick up once RIL’s self-help initiatives start showing through.
“Retail softness may continue for another couple of quarters, and we pare our estimates here, leading to 1 per cent average consolidated Ebitda cut over FY25-27E,” it said.
A day earlier, JP Morgan also pointed out that Reliance Retail has been affected by a general retail slowdown and specific company restructuring.
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Citi expects that RIL’s energy earnings from both O2C and oil and gas benefit from a weaker INR even as continued FII selling has dragged the largecaps.
“Improvement in refining, better visibility on new energy contribution, gradual retail recovery, and clarity on value unlocking are key catalysts,” it adds.
For Jio, Citi has forecast a one-year Ebitda CAGR of 24 per cent.