Buy Reliance Industries, target price Rs 1,600: Motilal Oswal Financial Services

Motilal Oswal Financial Services has a buy call on Reliance Industries with a target price of Rs 1,600. The current market price of Reliance Industries is Rs 1306.6. Reliance Industries, incorporated in 1973, is a Large Cap company with a market cap of Rs 1770034.38 crore, operating in the Diversified sector.

Reliance Industries' key products/revenue segments include Petrochemicals, Other Services, Oil & Gas, Others and Income from Retailing for the year ending 31-Mar-2024.

Financials

For the quarter ended 31-12-2024, the company has reported a Consolidated Total Income of Rs 244200.00 crore, up 3.29% from last quarter Total Income of Rs 236411.00 crore and up 6.66% from last year same quarter Total Income of Rs 228955.00 crore. The company has reported net profit after tax of Rs 21804.00 Crore in latest quarter.

The company's top management includes Mr.Mukesh D Ambani, Mr.Haigreve Khaitan, Mr.K V Chowdary, Mrs.Arundhati Bhattacharya, Dr.Shumeet Banerji, Mr.Raminder Singh Gujral, Mr.K V Kamath, Mr.Yasir Othman H Al Rumayyan, Mr.Akash M Ambani, Mr.Anant M Ambani, Mr.P M S Prasad, Mr.Hital R Meswani, Mr.Nikhil R Meswani, Ms.Isha M Ambani. Company has Chaturvedi & Shah LLP as its auditors. As on 30-09-2024, the company has a total of 1,353 crore shares outstanding.

Investment Rationale

Segment-wise, Motilal Oswal Financial Services expects RJio to be the biggest driver of EBITDA growth over FY24-27, driven by more frequent tariff hikes, market share gains in wireless, and ramp-up of the Homes and Enterprise business. The brokerage expects growth recovery in retail after the recent rationalization of unprofitable stores and B2B, driven by an increased footprint, category additions, and potential foray into quick commerce. Overall, they build in ~10% consolidated EBITDA and PAT CAGR over FY24-27, driven by double-digit EBITDA CAGR in RJio (wireless tariff hikes and FWA ramp-up) and RR (continued footprint and category expansions). After a subdued FY25, they expect earnings to recover for the O2C segment, driven by improvement in refining margins. However, their FY27 consolidated EBITDA for O2C and E&P is broadly similar to FY24 levels, which could have upside risks.

Motilal Oswal models an annual consolidated capex of Rs 1.25-1.3t for RIL, as the moderation in RJio capex is likely to be offset by higher capex in New Energy forays. However, they believe the peak of capex is behind, which should lead to FCF generation (~INR950b over FY24-27) and a decline in consol. net debt. For Reliance Retail, they ascribe a blended EV/EBITDA multiple of 32.5x (35x for core retail and 6.5x for connectivity), based on average valuations for retail peers (DMart, Trent, ABFRL, Metro Brands, and Vedant Fashions) to arrive at an EV of Rs 10.4 t for RRVL and an attributable value of Rs 625/share (earlier Rs 580/share) for RIL?s stake in RRVL. Continued recovery in retail revenue growth would be the key near-term trigger.

The brokerage values RJio on DCF implied 12.7x FY27E EV/EBITDA to arrive at the enterprise valuation of Rs 11.6 trillion ($137 billion) and assign ~$10 billion valuation to other offerings under JPL. Factoring in the net debt and also the 33.5% minority stake, the attributable value for RIL comes to Rs 530/share (earlier INR515/share). Using the SoTP method, they value the O2C/E&P segments at 7.5x/6.0x Mar?27 EV/EBITDA to arrive at an enterprise value Rs 436/share for the standalone business. They ascribe an equity valuation of Rs 530/share and Rs 6250/share to RIL?s stake in JPL and RRVL, respectively. They have assigned Rs 47/share (~Rs 630 billion equity value) to the New Energy business and Rs 26/share to RIL?s stake in Disney JV (based on transaction value). The have reiterated the BUY rating with a target price of Rs 1,600.

Promoter/FII Holdings
Promoters held 50.24 per cent stake in the company as of 30-Sep-2024, while FIIs owned 21.3 per cent, DIIs 17.52 per cent.