Even as the stock of Reliance Industries has been hitting new 52-week lows in the last few days, foreign brokerages such as JP Morgan and Jefferies have remained positive on the company and the prospects of stock price.
The stock on Monday hit a year-low of ₹2,180 before closing at ₹2,211.15, down 0.54 per cent over the previous day’s close. In the last six months, RIL tumbled nearly 12 per cent as against Nifty’s fall of 4.1 per cent and Sensex’s decline of 3.07 per cent
Capex booster
RIL’s ongoing capex/investments should allow it to scale up its already industry-leading petrochem, telecom and retail segments over the next two years.
“We think the stock offers long-term investors an attractive entry opportunity given the multiple catalysts over CY24-25 (potential listings of consumer businesses, petrochem growth, large 5G capex monetisation, new energy ramp-up), although admittedly more immediate catalysts appear limited,” said JP Morgan in a March 15 report while reiterating its Oversight stance. However, JP Morgan has reduced its March 2024 target price to ₹2,960 from its January 2024 target price of ₹3,015.
FII holding at 6-year low
FII ownership is at a six-year low, and the stock is 2 per cent from our bear case, further skewing risk reward favourably, it added.
According to Jefferies, RIL stock has corrected 18 per cent since November bringing valuations to a discount to LT average. “We note $120 billion of equity and net-debt:equity near 22-year low makes the current capex cycle different from the one in the last decade,” it said in its March 16 report.
Jefferies, which reiterated its Buy rating with a target price of ₹3,100, said the company will focus on improving the efficiency and throughput of this large floor space that should aid growth and operating leverage over FY24-25E. We project 30 per cent core revenue growth, 25 per cent EBITDA growth in FY24. “Capex run rate should peak out over FY23-24,” Jefferies said in the report.
Balance sheet to improve
Retail floor-space addition will slow, and 5G roll-out will largely be behind us in FY25, it said, adding, “We see pace of capex slowing FY25 onwards, with green energy being the major driver beyond FY25.”
RIL has consolidated equity of approximately $120 billion — this is about 4x larger than when the last capex cycle took off in FY14. “We note net-debt:equity is near 22-year low, and expect strong operating cash flows with rising O2C profitability to keep net debt comfortable over FY24-25.”