JPMorgan says RIL shares offer good entry point, revises price target to Rs 2,960

JPMorgan on Thursday said Reliance Industries (RIL) shares are offering long-term investors an attractive entry opportunity, given multiple catalysts over 2024-25. They included potential listings of RIL's consumer businesses, likely strong growth in petchem segment, the monetisation of 5G capex and a ramp-up in new energy, the foreign brokerage said. The broking firm, however, admitted that there are limited immediate catalysts for the stock.

In an increasingly capital-scarce environment, RIL’s core strength of investing large amounts of capital in growth projects is a key positive, the brokerage said.

"New energy is likely a multi-year opportunity but may take over 12-18 months to emerge as a material part of the investment case. FII ownership is at a six-year low, and the stock is 2 per cent from our bear case, further skewing risk reward favourably," it said.

The brokerage has an 'overweight' rating on the stock, with a revised March 2024 price target of Rs 2,960 against January 2024 price target of Rs 3,015 earlier.

JPMorgan said RIL's retail segment growth has been strong, on track for $2 billion PAT by FY25, but Jio is lagging expectations on non-telecom business. It said Jio’s wireless market leadership continues to expand, but the non-telecom business has been slow to pick up (enterprises, advertising). Covid shutdowns did not help, the brokerage said.

"However, retail growth has been strong, with Q3FY23 revenues/Ebitda/square feet 90 per cent/184 per cent/192 per cent vs 3QFY19. While near-term retail growth should slow down in line with softer consumer demand, Reliance Retail’s focus and investments on square feet additions, omni-channel distribution, multiple brands/acquisition, own brands focus, large warehousing space additions and scaling up new commerce/Jio Mart/FMCG is positive," it said.

JPMorgan said disclosures remain very low in retail, which RIL attributes to competitive reasons as their two biggest competitors remain privately owned in India.

JPMorgan said RIL stock is trading 2 per cent above our bear case. The stock’s multiple compression in the last year appears to mirror the index derating rather than reflect new stock-specific risks. The FII selldown means FII holdings stand at six-year lows, it said.

"Strong O2C, E&P cash flows allow RIL to continue to invest across businesses. On balance, we believe our earnings assumptions have upside risks," it said

Every $1 GRM, $50 per tonne petchem spreads, 10 per cent ARPU increase impacts EPS by 5 per cent, 6 per cent, 5 per cent, respectively. We are also not building any new energy stake sales in, nor potential IPOs of consumer business in FY24, which means that identifiable immediate catalysts may be scarce," it said.

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