RIL share price target at Rs 3,000? What Morgan Stanley, Nomura, others say on stock valuations
RIL Q2 results review: Morgan Stanley said RIL's Q2F24 Ebitda was a slight beat, 2 per cent above estimates, thanks to better-than-expected energy earnings and better revenue growth in retail.
- Oct 30, 2023,
- Updated Oct 30, 2023 10:05 AM IST
Reliance Industries Ltd (RIL) reported a slight beat on September quarter profit on an in-line sales growth, with earnings quality being better than expected in terms of oil to chemicals margins, growth in retail sales and reduction in net debt. Analysts said the capex intensity is showing signs of slowdown and net debt is receding. They see favourable risk-reward on the counter.
Morgan Stanley said RIL's Q2F24 Ebitda was a slight beat, 2 per cent above estimates, thanks to better-than-expected energy earnings and better revenue growth in retail. Digital segment's performance, it said, was in line. Net profit was in line, with capex showing some slowdown, the foreign brokerage said.
"F25e P/E of 18.8 times is a 26 per cent discount to peers and 10 per cent below its five-year average, despite improving ROCE. The stock implies below mid-cycle energy earnings and no upside from wireless broadband plans. As net debt peaks and monetisation of $35bn capex picks up, we see attractive risk-reward," it said.
The brokerage has maintained its share price target on the stock at Rs 2,821. Nomura India has maintained its "Buy' rating on the stock with a target of Rs 2,925. It said Reliance Jio reported strong net subscriber additions and a modest average revenue per user (ARPU) growth. Reliance Retail saw a robust growth along with margin expansion. In the E&P vertical, volumes were up on commencement of MJ field. The O2C segment saw robust refiling margins, partly offer by a decline in petchem, Nomura India said.
Jefferies increased its target price on RIL to Rs 3,000 from Rs 2,095. Macquarie has upped its target on the stock to Rs 2,200 from Rs 2,100 and has upgraded the scrip to neutral from 'underperform'.
"RIL reported largely in-line earnings in Q2FY24, driven by a beat on our Retail and O2C estimates, while upstream saw a miss due to MJ1 commissioning costs. Jio remained consistent with better than expected net subscriber additions. Net debt fell 7 per cent sequentially, led by Retail fund-raise and strong OCF," said Emkay Global.
The oil-to-telecom major reported 27 per cent jump in consolidated net profit (attributable to owners of the company) at Rs 17,394 crore for the quarter, supported by oil-to-chemicals (O2C) business. The Mukesh Ambani-led company reported a 1 per cent rise in consolidated revenue at Rs 2.34 lakh crore for the quarter.
The management suggested that capex intensity is expected to decline by FY24-end, on completion of 5G network roll-out. It attributed the second quarter to 5G rollout and building of the retail eco-system.
"We keep FY24-26E earnings largely unchanged. We retain our 'Buy' on RIL on the back of steady earnings outlook and peaking-out of current capex cycle which should entail FCF generation and debt reduction. Valuations are attractive and we maintain Sep-2024 target at Rs 2,730 per share," said Emkay said.
Motilal Oswal Securities said RIL's consumer business continued to post double-digit Ebitda growth with both RJio and Reliance Retail now likely to record 15 per cent and 30 per cent Ebitda CAGR over FY23-25. The growth, it said, would be driven by retail sector’s footprint additions and new categories, while the telecom business may continue to focus on subscriber growth.
"In O2C, we see refining and petchem segments margins picking up from the current levels as net capacity additions for both segments are tapering off on a YoY basis in CY24. Further, FY25 would see the full benefit from the ramped up volumes at MJ field," the brokerage said.
The domestic brokerage, which has target of Rs 2,760 on the stock said, RIL's premium valuation multiples capture the opportunity for rapid expansion in its retail business and the aggressive rollouts of the digital platforms.
Meanwhile, Nuvama Institutional Equities noted that RIL's net debt fell about Rs 8,000 crore to Rs 1.2 lakh crore from March level, led by an Rs 15,300 crore capital-raise from stake sale in retail ventures. It reiterated its long-term “golden refining era” thesis for RIL.
"New energy shall unleash the next leg of growth opportunity. We are cutting FY24E/25E Ebitda by 2 per cent (weak near-term outlook), dragging target price by 4 per cent to Rs 2,950," it said.
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Reliance Industries Ltd (RIL) reported a slight beat on September quarter profit on an in-line sales growth, with earnings quality being better than expected in terms of oil to chemicals margins, growth in retail sales and reduction in net debt. Analysts said the capex intensity is showing signs of slowdown and net debt is receding. They see favourable risk-reward on the counter.
Morgan Stanley said RIL's Q2F24 Ebitda was a slight beat, 2 per cent above estimates, thanks to better-than-expected energy earnings and better revenue growth in retail. Digital segment's performance, it said, was in line. Net profit was in line, with capex showing some slowdown, the foreign brokerage said.
"F25e P/E of 18.8 times is a 26 per cent discount to peers and 10 per cent below its five-year average, despite improving ROCE. The stock implies below mid-cycle energy earnings and no upside from wireless broadband plans. As net debt peaks and monetisation of $35bn capex picks up, we see attractive risk-reward," it said.
The brokerage has maintained its share price target on the stock at Rs 2,821. Nomura India has maintained its "Buy' rating on the stock with a target of Rs 2,925. It said Reliance Jio reported strong net subscriber additions and a modest average revenue per user (ARPU) growth. Reliance Retail saw a robust growth along with margin expansion. In the E&P vertical, volumes were up on commencement of MJ field. The O2C segment saw robust refiling margins, partly offer by a decline in petchem, Nomura India said.
Jefferies increased its target price on RIL to Rs 3,000 from Rs 2,095. Macquarie has upped its target on the stock to Rs 2,200 from Rs 2,100 and has upgraded the scrip to neutral from 'underperform'.
"RIL reported largely in-line earnings in Q2FY24, driven by a beat on our Retail and O2C estimates, while upstream saw a miss due to MJ1 commissioning costs. Jio remained consistent with better than expected net subscriber additions. Net debt fell 7 per cent sequentially, led by Retail fund-raise and strong OCF," said Emkay Global.
The oil-to-telecom major reported 27 per cent jump in consolidated net profit (attributable to owners of the company) at Rs 17,394 crore for the quarter, supported by oil-to-chemicals (O2C) business. The Mukesh Ambani-led company reported a 1 per cent rise in consolidated revenue at Rs 2.34 lakh crore for the quarter.
The management suggested that capex intensity is expected to decline by FY24-end, on completion of 5G network roll-out. It attributed the second quarter to 5G rollout and building of the retail eco-system.
"We keep FY24-26E earnings largely unchanged. We retain our 'Buy' on RIL on the back of steady earnings outlook and peaking-out of current capex cycle which should entail FCF generation and debt reduction. Valuations are attractive and we maintain Sep-2024 target at Rs 2,730 per share," said Emkay said.
Motilal Oswal Securities said RIL's consumer business continued to post double-digit Ebitda growth with both RJio and Reliance Retail now likely to record 15 per cent and 30 per cent Ebitda CAGR over FY23-25. The growth, it said, would be driven by retail sector’s footprint additions and new categories, while the telecom business may continue to focus on subscriber growth.
"In O2C, we see refining and petchem segments margins picking up from the current levels as net capacity additions for both segments are tapering off on a YoY basis in CY24. Further, FY25 would see the full benefit from the ramped up volumes at MJ field," the brokerage said.
The domestic brokerage, which has target of Rs 2,760 on the stock said, RIL's premium valuation multiples capture the opportunity for rapid expansion in its retail business and the aggressive rollouts of the digital platforms.
Meanwhile, Nuvama Institutional Equities noted that RIL's net debt fell about Rs 8,000 crore to Rs 1.2 lakh crore from March level, led by an Rs 15,300 crore capital-raise from stake sale in retail ventures. It reiterated its long-term “golden refining era” thesis for RIL.
"New energy shall unleash the next leg of growth opportunity. We are cutting FY24E/25E Ebitda by 2 per cent (weak near-term outlook), dragging target price by 4 per cent to Rs 2,950," it said.
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