“BUY” Reliance Industries With A Target Price of Rs. 2900 Says Motilal Oswal

Motilal Oswal Financial Services Limited, an Indian brokerage company, has recommended buying the stock of Reliance Industries Limited (RIL) with a target price of Rs. 2,900. The brokerage forecasts a +16 percent rise from the stocks current market price of Rs. 2500. Reliance Industries Limited is the largest private-sector organisation in India and a Fortune 500 company. The brokerage has reported that RJios revenue growth has decelerated in the last few quarters to the mid-single digits v/s the double digits - given the moderation in subscriber adds. However, we see two key growth levers: a) tariff hikes - RJio may likely follow Bharti and VIL with a ~20% price hike in the Smartphone category. This is because it has achieved market leadership in this category, and the intent is to now monetize this large pool of subscribers to improve growth/profitability. According to Motilal Oswal This could revise our 2QFY22 annualized EBITDA by 16%. b.) JioPhone Next-led subscriber growth - The company is keen to target a large chunk of the 300m Feature Phone market through JioPhone Next. We believe the handset has limited distinguishing features; however, as the chip shortage eases, it should sharpen pricing in the Feature Phone segment and launch improved versions to revive subscriber additions. We have factored in core revenue / EBITDA growth of 15%/22% over FY20-24E to reach INR934b/INR485b, not considering a material price hike. The companys retail market has seen strong revival from COVID-19, unlike the first phase, with the festive season seeing double-digit SSSG across categories. The steady addition of >900 stores in 1HFY22 should also see accelerated additions of nearly 1500-2,000 stores in 2HFY22. However, the big surprise has been the online business, which now contributes 20% to core revenues at an annualized revenue run-rate of INR210b (from being an insignificant contributor around eight quarters ago) the brokerage said. According to the brokerages research report It has achieved scale closer to the category leaders in the Grocery and Apparel segments, well supported by a) the supply chain of a deep physical retail network and b) aggressive expansion in warehousing capacity (2.5m added in 2QFY22. We expect 2HFY22 to drive >40% revenue growth over pre-COVID levels (2QFY20) on the back of revival amid COVID and contribution from 52% footprint addition over the last two years. Subsequently, we expect a revenue/EBITDA CAGR of 25%/28% to INR3,137b/INR248b over FY20-24E.Advertisement According to the brokerages call RIL, in the last year, has seen strong deleveraging on the back of value unlocking in the Consumer business, which has aided valuations. The Consumer biz - RJio and Reliance Retail are richly valued given their strong growth potential. We see price hikes in the Telecom business and revival in the Retail business - led by strong growth potential in JioMart - as key levers for the stock over the next two years. RIL is trading at 11.9x FY23E EV/EBITDA and 19.2x FY23E P/E. Using SOTP, we value the stock at INR2,900 and reiterate Buy. The stock has been picked from the brokerage report of Motilal Oswal Financial Services Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.