CLSA sees 35% upside in RIL, chances of Jio/Retail arm IPOs in next 12 months

The 20% correction in shares of Reliance Industries (RIL) in less than four months has brought the valuation of the conglomerate closer to its conservative estimates, making it a bargain buy at current levels for brokerage CLSA.

CLSA recommends buying the stock for a target price of Rs 2,970, implying a 35% upside from current levels.

Shares of RIL were trading 1.3% higher at Rs 2,230.55 on the National Stock Exchange today. But the stock has corrected more than 12% year-to-date and hit a 52-week low of Rs 2,180 in the previous session.

Besides muted earnings growth, no communication on the potential listing of the telecom or retail businesses has also been a major overhang on the stock. But with three years having passed since the stake sale to private equity investors, CLSA sees a good chance for the IPO of Jio and/or retail in the next 12 months.

The stock is trading at just 5% above its conservative valuation based on a nearly 3-year-old deal value for Reliance Jio and Reliance Retail, a 15% discount to the announced Aramco deal value for its O2C business, and nil value for the new energy business, CLSA said in its report.

The lack of any major launches and growth in mainstay oil-to-chemicals business kept the stock subdued over the past 18 months.CLSA expects RJio to start offering its portable 5G device (Jio Airfiber) to ramp-up wireless broadband additions, and launch its affordable 5G smartphone as it monetises its pan-India standalone 5G launch by end of 2023.

The recent brand launches such as Independence and Campa Cola suggests that one could see visible strides in RIL’s FMCG business in 2023. Meanwhile, cooling crude prices, pick-up in gasoline spreads and the near removal of the windfall taxes have resulted in higher refining margins. Key petchem product spreads have also bounced from lows on the back of the reopening of China.

All these factors should drive oil and gas profits higher in the March and June quarters, CLSA said. Further, despite the enhanced investments on 5G services, RIL’s consolidated leverage, CLSA says, should remain under control and well below 2 times its operating profit. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own.

These do not represent the views of The Economic Times)

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