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Reliance Industries share


Dear investor,

Please find below mentioned medium term fundamental stock for delivery purpose.

 

Company

CMP

Target

BSE Code

NSE Code

Reliance Industries Ltd

1746

2080

500325

RELIANCE

 

A slew of investments to the tune of Rs1.16lakh crore, in a subdued macro environment, has placed Reliance industries at the top of the list of most valuable companies by marketcap in India. Resultantly, the company was able to achieve net debt-free status much before its timeline of March 20201, as promised by the management. With these investments, the JIO platform marketcap is currently valued at Rs4.68lakh crore (Reliance Industries marketcap is currently Rs11.15lakh crore) indicating a huge value potential to be unlocked in the near term. We expect the company to display a strong show of resilience as a retail business would continue to remain under pressure in the near term owing to pandemic; however, its telecom business seems to be stabilizing providing required cushion. We value RIL at 1-yr forward EV/EBITDA of 13.1x with a target price of Rs 2024.
 

Investment rationale
 

Potential Re-rating due to purely a tech company - Post listing of JIO, it would be viewed purely as a technology company. The company has its presence from the payment system to the eCommerce site. We believe the recent deals by various PE investors would set the benchmark valuations for listing. The Jio mart app, which recently went live aimed towards grocery, has linked the thousands of Kirana stores across 200 cities. Eventually, we expect the Jio mart app to be super eCommerce site catering from electronics to groceries with Reliance retail acting as a backend.

 

ARPUs to stabilize - After a price hike in December 2019, we expect the ARPU to settle around Rs145 for FY21 (the company has relatively lower prices compared to its peers). The recent ruling in SC regarding AGR dues would decide the fate of telecom industry which might result in consolidation in the near term.

 

Consumer business to gain traction - Post investments in Jio, we expect the company to open up investments in the retail business. The company has its stores in tier 2 and tier 3 cities which have been a real differentiator compared to another retailer. Besides, we expect the company to benefit from Jio mart app which should help in incremental revenue contribution.

 

Outlook and Valuation - The stock had a dream run on bourses following its collapse led by the pandemic. We expect the company to deliver superior earnings in the medium term due to 1) Stabilizing ARPU, 2) Potential investments in Retail business, and 3) increased free cash flows due to reduced intensity of capex. We value RIL at 1-yr forward EV/EBITDA of 13.1x with a target price of Rs 2024.

 

Duration of recommendation: Medium to long term.

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