Jefferies recommends buy on RIL, sees 22% upside. 4 reasons

Jefferies has recommended a 'Buy' on Reliance Industries (RIL) shares banking on faster revenue growth. The brokerage firm finds risks-to-reward favourable for Reliance while estimating a 22% upside in the stock from current levels. The price target is fixed at Rs 3,125.

Jefferies lists 4 reasons why RIL could see a rally:

1) Retail: Brick & Mortar (B&M) to drive growth with operating leverage while capex intensity should fall, the Jefferies report said. We expect footfall to improve in FY24-25E on Future Group floor space amalgamated in FY23, which will drive improvement in throughput per square foot resulting in operating leverage. We expect a YoY decline in capex in FY24-25E as we see room for faster revenue growth and higher margins on 32 million square feet added over FY 2022-23 (on 34 million sq ft base).


The retail footfall 3-year CAGR (9%) lagged floor space CAGR (32%) with the footfall per square feet in 4QFY23 at 50% of pre-Covid.

2) O2C: Russia's share of India's oil imports at 42% in May is contributing $ 5/bbl additional margin to RIL. Petchem margins are improving on inventory correction and improving DD in China. Lower US ethane prices are also aiding margins. Jefferies sees limited downside to our 9% O2C EBITDA growth estimates in FY24E.

3) Jio Broadband traction to aid 5G monetisation, margin improvement: With a near 100 million potential broadband addressable market up for grabs, Jio has aggressive market share targets. Jio has cornered 55% incremental market share in broadband subscriber additions. "We expect broadband sub adds to accelerate augmented by rapid FWA rollout. Margins should increase as cost of data on 5G is only a fraction of that on 4G," the report said.

4) Green Energy: 5GW HJT solar PV module capacity and 5 GWh LFP stationary storage will commence by mid-CY24. PV module capacity will be scaled up to 20GW by end-CY25. Majority of initial production will be used in captive generation plants (20GW capacity) that should come online by CY26.

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