Reliance Industries shares: Recent weakness puzzling, RIL stock a compelling Buy, says Kotak Securities

The recent underperformance of Reliance Industries has been puzzling, as the outlook across key verticals is sanguine, Kotak Institutional Equities said in its latest note. After the recent correction in Reliance Industries shares, Kotak believes the market is not ascribing any value to the oil-to-telecom major's new commerce and FMCG forays, new energy or duopoly benefits in Reliance Jio.

The brokerage felt that the stock price also seems to factor in a much lower multiple (25 times EV/Ebitda versus base case valuation of 32.5 times) for retail and Rs 50,000 crore higher net debt.

Reliance's earnings would likely remain robust in the energy vertical with high margins, lower export tax in refining, rising volumes, elevated prices in E&P and recovery in petchem spreads, it said. In the telecom business, Kotak expects a rising competitive intensity and likely delay in tariff hikes until 2024 elections. but this would effectively lead to duopoly and result in accelerated market share gains for Reliance Jio, it said.

Kotak said recent acquisitions, store expansions and entry in new verticals in the retail segment has prompted it to believe that Reliance will have market leadership across several verticals. The brokerage has reiterated its 'Buy' on the stock with a lower fair value of Rs 2,900 from Rs 3,000 earlier.

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Reliance Industries shares have fallen 13 per cent year-to-date compared with a 5.5 per cent drop in the BSE Sensex during the same period. The scrip has underperformed the BSE barometer in the one and two-year periods, but has outperformed it in the 3-, 5- and 10-year periods, data showed.

This is because Kotak has lowered its 2024-25E Ebitda by 4-5 per cent, largely driven by delayed tariff hike assumption in Reliance Jio and higher net debt assumption.

"With the 5G roll-out completing in 2023, we think the capex would moderate from current elevated levels, but would remain at Rs 1-1.1 lakh crore, driven by expansion in retail and new energy investments," it said.Also read: Securekloud Tech shares tank as ED arrests promoters in Money Laundering Act

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