Reliance Industries Ltd (RIL) stock is a favourite for the long term as well as short term investors, despite being overvalued. RIL, which has built up a dominant presence in Refining, Petrochemicals, Telecom and Retail businesses, has remained a key component of a majority of portfolios. With its strong franchises and partnerships, analysts too mostly give a 'BUY' rating to the stock.
As RIL's management works on transforming the company from a brick and mortar to a digital play, the stock price of the conglomerate is up 72.36% over the past six months, compared to the 3.74% rise of BSE30-share benchmark Sensex.
"Investors are looking beyond one year to understand the prospects on how the company can capture growth opportunities across the various markets in which it operates," Morgan Stanley in its note.
Reliance's highly liquid balance sheet has also helped the firm to keep good stead amid the current economy, challenged by the COVID-19 pandemic. Simultaneously, RIL has highlighted plans for expansion.
Equity analysts suggest the stock has been outperforming as the current stock multiple captures some of the near-term upsides and believe that the stock will continue to drive upward in the upcoming quarters as well.
With Jio platforms attracting investments from marquee investors like Facebook, Silver Lake Partners, General Atlantic, KKR of Rs 1.52 lakh crore, RIL became debt free this year months ahead of the March 2021 target.
It has also strengthened position in the retail segment by acquiring the Retail, Wholesale and the Logistics & Warehousing Business from the Future Group for a total consideration of Rs 24,713 crore.
As per analysts, these ventures not only helped the company become debt-free but also put the firm in par with global eCommerce giants such as Amazon & Walmart. Improved retail sales via online platforms will further aid it in becoming India's fast-growing digital and consumer market.
In a drive to tap the fast-growing market for online shopping, the company's recent acquisition of future retail business will help it increase its leadership position in the retail space. RIL has also reportedly offered all 13 investors of Jio Platforms (including Facebook, Google etc) an option to invest in its retail unit. Further, reports on Silver Lake in talks to buy $1bn stake in Reliance Retail with finalisation of investments and partnerships in the coming quarters has also kept the stock in positive territory, despite a weak equity market.
On Jio's front, the telecom is under a decent spot due to higher ARPU and customer addition. Further, the SC verdict on the AGR case will also help market leaders Reliance Jio, and Bharti Airtel to increase their market shares, as per Fitch Ratings. Fitch said it expects Jio and Bharti to increase their combined revenue market share to 75%-80% from around 70% in the next 12-18 months, at the expense of Vodafone Idea.
Company's growth prospects have always made investors run after the stock post any short-term profit booking. Chairman Mukesh Ambani has also highlighted the company's pain to become the next growth engine in new energy, new materials, e-commerce, and 5G, during the last AGM in July 2020.
The company also announced its initiative to carve out its oil-to-chemicals business, including those in refining, fuel retail and aviation fuel and readying the unit for a potential stake sale.
Nomura maintained buy at a target price of Rs 2,450 and said that buying of Future Retail business improves the company's future outlook. "The recently launched new commerce venture, JioMart, will also benefit from an increased number of physical outlets. A combined entity with a larger market share will also increase potential strategic investor interest, in our view," it added.
BofA's target for the stock stands at Rs 2,355 with a 'Buy' rating. Though there could be intermittent corrections in the stock in the near-term, the risk-reward is favourable from a 12-month perspective, the brokerage said.
It said," One of the reasons why companies like Amazon, Alibaba, Tencent etc. have been able to create "shareholder value" is because they owned their customers. We believe RIL also has the potential to do this. In fact RIL's approach appears to own the "pipe" as well as the "services" offered on the pipe."
"After building a digital layer (Jio Platforms) on top of the existing physical layer of retail shops, Reliance Industries would over the next four years focus on adding a third layer of commerce and monetize the existing investments across different formats," said BofA Securities. "By working with the kiranas, RIL would likely increase its B2B sales as well," BofA added.
Kotak Institutional equities has also rated 'ADD' to RIL stock at a fair value of Rs 2,150, with an upside of 3%.
For the near term, RIL's resistance is placed at Rs 2,111, support at Rs 2,049, with 50-Day Moving Average placed at Rs 2,023 and 200-DMA placed at 1,585, as per IIFL Securities.
Commenting on Reliance, Jyoti Roy - DVP- Equity Strategist, Angel Broking said," We remain positive on Reliance Industries Ltd. and expect that the digital and the retail business will be the future growth driver for the company while the O2C (Oil to Chemicals) business should also stage a recovery in FY2022 once demand normalises. Strategic investment in the O2C business and the retail business will be key triggers for the company in the near future while listing of the digital and retail business over the next few years would also lead to significant value unlocking for shareholders in the long run. We continue to maintain our buy rating on Reliance Industries with a target of Rs 2,366."
HSBC Global Research maintained a Hold rating on the stock at a target price of Rs 2,020, which implies 4.5% downside and added that the successful completion of the RIL- Future Group deal could add 2.7-4.8% to its stock valuation
The brokerage said," Through Reliance Brands, RIL now has exclusive tie-ups with more than 46 global luxury brands across 650 stores. With more than 52 Reliance Markets (cash and carry format) across 46 cities, RIL has a presence in both the B2B and B2C segments. RIL ensured operation of 98% of its grocery stores during COVID-19 lockdowns and launched JioMart in 200 cities meeting order flow at 4x the pre-lockdown level."
JP Morgan also held a Neutral rating for RIL stock and said the acquisition of the retail business of the future group solidifies Reliance Retail's dominance in organised retail across categories.
CLSA in its report kept an outperform rating on the stock saying that the current market cap offers no upside based on deal benchmark valuations. It added that RIL may now have exhausted its large near term triggers. "Notwithstanding the long term opportunity offered by Reliance, large stock upsides may be limited in the near term," the brokerage said.
Morgan Stanley kept overweight Rating on the stock and said," We stay OW on RIL and see capital allocation, execution, and de-gearing as key to the next leg of RIL's stock outperformance while industry consolidation across telecom, retail and global refining drives pricing and supports rise in energy margin, higher ARPUs, and ~28% EPS CAGR in F20-F23e."
Jefferies in a note said that Reliance Retail's acquisition of Future Group industry is a concern for the FMCG industry and added that, " With a strong foothold in retail and increasing focus on Kirana digitisation under JioMart, Reliance Retail could alter industry dynamics or at least start the power struggle."
Currently, the RIL stock trades 4.35% away from all-time high of Rs 2198.7. It closed 1.18% higher today at Rs 2,107 on BSE while Sensex fell 0.14% intraday. Stock price of Reliance Industries has gained 72% in one year and 0.93% in the last one week. Market capitalisation of the firm stood at Rs 13,35,744 crore today. The stock trades higher than 5, 50, 100 and 200-day moving averages but lower than 20-day moving averages.