RIL shares at Rs 2,750 or Rs 3,200? Valuations reasonable, but windfall tax a near-term drag, say analysts

Reliance Industries reported an inline December results, with its earning per share getting trimmed marginally, as analysts believe windfall tax on HSD/ATF exports should drag earnings in the near-term. Emkay said the December quarter results were a marginal beat due to better oil-to-chemical (O2C) segment performance. This brokerage finds Reliance's stock valuations reasonable. For Nuvama Institutional Equities, Reliance Industries is firing on all cylinders. This brokerage felt plan towards green H2 should re-rate stock valuation.

Among segments, Motilal Oswal said telecom venture RJio's growth softened with higher churn; profit for the business missed its estimates by 5 per cent. Retail arm Reliance Retail saw record footfalls, but discretionary demand remained soft, it said adding that O2C – performance was supported by strength in middle distillate cracks.

Nomura India has a target of Rs 2,850 on the stock; Jefferies sees it at Rs 3110 while JPMorgan has a target of Rs 3,015 on the stock. Motilal Oswal Securities has a target of Rs 2,800 on the stock; Emkay finds the stock worth Rs 2,750;  Nuvama has a target of Rs 3,205 on the stock.

Motilal Oswal said consolidated gross debt increased to Rs 3,03,500 crore  against Rs 2,94,900 crore  at the end of September quarter, with cash & cash equivalents of Rs 1,93,300 crore. Net debt stood at Rs 1,10,200 crore as per the company.

"The consumer business has seen soft growth in both retail and telecom as retail was hit by soft discretionary spends and telecom business has seen high churn and limited ARPU levers. Further, 5G investment should intensify with the target to achieve pan-India rollout by December 2023. The oil and gas segment has seen tailwinds with better margin as well as higher and sustained production coupled with opening up of China that could sustain earnings," it said.

Nuvama expects gross refining margin for RIL to stay lofty ($5-6 per barrel) on strong middle distillate cracks.

"Windfall tax will remain a near-term earnings drag. We reiterate our ‘Golden Era of Refining’ thesis, yielding over $10 GRM from 2024 onwards. Upstream to nearly match retail FY24E Ebitda given steep gas prices and further KG-D6 ramp-up. New energy (upgrade) plan towards green H2 shall re-rate valuation, besides huge synergies with existing O2C," Nuvama said while suggesting a target of Rs 3,205 on the stock.

Emkay has slightly cut its FY23-25E EPS estimates by 3-5 per cent, building higher capex-debt-interest cost, and has roll over its valuation to March 2025.  "We have lowered Retail EV/Ebitda multiple to 35 times, but raised upstream to implied 4 times. We retain BUY with a target of Rs 2,750," it said.

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