Reliance Industries share price: Brokerages turn bullish on RIL stock, set highest target of Rs 1,750

Reliance Industries share price rose in trade today after global banking major HSBC cited strong performance of retail and telecom business to raise the target price of the stock. Reliance Industries share price gained up to 2.1% to Rs 1,569.60 against previous close of Rs 1537.25 on BSE. Market capitalisation of the Mukesh Ambani-led conglomerate rose to Rs 9.82 lakh crore on BSE.

RIL share price has gained 40.09% during the last one year and risen 37.82% since the beginning of this year.

HSBC said," Operating trends for Jio and organised retail remain strong and are set to drive near-term upside potential. Jio's plans to raise tariffs offer scope for rapid improvement in profitability amid declining capital expenditure which is a positive for RIL." HSBC retained buy call for Reliance Industries share and raised its target price to Rs 1,700 from Rs 1,565.

It has been a dream run for the Reliance Industries stock since the conglomerate announced its Q2 earnings on October 18, 2019. The firm has received a series of upgrades from brokerages since October.

Also read: Reliance Jio to hike tariffs: Is this the end of honeymoon period for consumers?

On November 20, Credit Suisse raised its target price to Rs 1,400 from Rs 1,210 citing likely tariff increase by Reliance Jio which could bring annual cash flow of $1.5 billion. This cash flow will help the firm achieve zero net debt target by FY21, the brokerage said.

It raised its FY20/21/22 earnings per share estimates by 15%, 12% and 20%, respectively.

On November 5, UBS reiterated its 'Buy' call for RIL stock and increased the price target from  Rs 1,500 to  Rs 1,750. UBS said plans to re-organise its investment in Reliance Jio Infocomm Ltd (RJIL) to make Jio a net debt-free company by the end of the current fiscal could unlock significant value for the conglomerate.

In October end, Reliance Industries said it would set up a new unit to bring all its digital initiatives and apps under a single entity, and infuse Rs 1.08 lakh crore equity into this new unit.

The new structure will also create the largest digital services platform company in India. The new entity will continue to work on technologies in areas such as healthcare and education, while also looking at next-gen competencies such as artificial intelligence, Blockchain, virtual and augmented reality, among others.

Also read: Reliance Industries becomes 1st Indian company to cross Rs 9.5 lakh crore market cap

Before Q2 earnings were announced on October 16, Brokerage Bank of America Merrill Lynch pegged market cap of RIL at $200 billion in 24 months.  Mukesh Ambani-led Reliance Industries is likely to become first Indian company to reach $200 billion market cap in 24 months backed by its new commerce venture and fixed broadband business, Bank of America Merrill Lynch (BofA-ML) said in a report.

The stock is likely to receive additional boost with several initiatives Reliance Industries has undertaken. New commerce initiative of empowering Kiranas in unorganised retail market by offering MPoS (mobile point-of-sale), entry into SME enterprise space with Microsoft, Jio's fiber broadband business and digital initiatives such as advertising could push the market capitalisation of the conglomerate to $200 billion, the brokerage said.

"We think the market is giving little credit to these initiatives given limited visibility," BofA-ML said. "We expect near-term momentum to be strong."

Strong Q2 performance

Reliance Industries reported a record net profit of Rs 11,262 crore for the quarter ended September 30, 2019 due to recovery in refining margins compared to consolidated net profit of Rs 9,516 crore in the same quarter last year. RIL reported gross refining margins at $9.4 per barrel, the best in four quarters.

Analysts had estimated RIL's GRM to come in at $9.5-$10.5 per barrel in Q2. Gross refining margin is the difference between the total value of petroleum products coming out of an oil refinery (output) and the price of the raw material, (input) which is crude oil. The Q2 earnings came above Bloomberg consensus estimates according to which the conglomerate was likely to report a 17 per cent rise in its consolidated net profit to Rs 11,158 crore.

The conglomerate logged a 4.8 per cent rise in revenue to Rs 163,854 crore in Q2 against Rs 1,56,291 crore in the corresponding quarter, led by strong growth in retail and digital services businesses. Profit before tax (PBT) rose 15.5 per cent to Rs 15,055 crore in  Q2 compared with Rs 13,198 crore in corresponding period of previous fiscal.

RIL logged operating profit (EBITDA) of Rs 23,169 crore in Q2 compared to Rs 21,641 crore in the corresponding period of the previous fiscal on strong operating performance in retail and digital services business. Other income rose nearly three-fold to Rs 3,614 crore in Q2FY20 against Rs 1,250 crore in Q2FY19.