After JFS, Reliance Retail next? What Nomura says on RIL shares, unlocking opportunities

Nomura India believes that more unlocking opportunity at Reliance Industries Ltd (RIL) is in the works following the demerger of Jio Financial Services (JFS). In its latest note, Nomura India said the recent move to clean up Reliance Retail’s shareholding structure by buying back minority shareholders is a step towards unlocking value in the retail business and that RIL could progress on this in the coming year.

"We believe value unlocking from the Platforms business is also on the cards, albeit RIL could drive higher valuations for the business as its non-telecom platform businesses and enterprise operations ramp up further," Nomura India said in a note.

The brokerage cited that the RIL's FY19 AGM where the management while discussing the company's consumer-facing businesses of Retail and Jio said it would “move towards listing of both these companies within the next five years”.

Ahead of RIL Q1 results, Nomura India reiterated its 'Buy' rating on RIL with a target of Rs 2,850. RIL remains its top pick in the India energy sector, as it sees company to deliver strongly in FY24-245F, underpinned by strong growth for its two consumer-facing businesses of Jio and Retail, and upstream gas production, while O2C earnings remain largely range-bound (on conservative estimates).

In the case of JFS, Nomura said at the current price of roughly Rs 262, JFS has an implied market cap of Rs 1.66 lakh crore. It believes RIL’s significant scale through its retail stores, registered retail consumers of 24.9 crore and a telecom subscriber base of 43.9 crore can enable a strong ramp-up of this business and drive valuations further.

"However, we do not discount the inherent differences between RIL’s existing businesses and financial services," it said.

For Reliance Retail, Nomura India estimates revenue of Rs 3.3 lakh crore and Ebitda of Rs 23,300 crore with margins of 7.1 per cent. For FY25, it estimated overall revenue of Rs 3.99 lakh crore and ebitda of Rs 29,300 crore, with margins of 7.3 per cent.

"Over the next two years, we build in an overall revenue CAGR of 24 per cent and an Ebitda CAGR of 29 per cent," Nomura India said.

For Reliance Jio, Nomura is factoring in an end-of-period (EoP) subscriber base of 46.3 crore in FY24F and 48.6 crore  in FY25. It is do not building in a tariff hike in FY24 with wireless ARPU (average revenue per user) at Rs 178. It sees a 6 per cent tariff hike in FY25, leading to an ARPU of Rs 189.

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