Jefferies initiates coverage on Reliance with buy rating, sees 25% upside

MUMBAI: Jefferies has initiated coverage on with a buy rating and a target price of Rs 2,600 as it sees the oil-to-telecom conglomerate as a proxy for India's consumption growth story.

The brokerage said that a transition from B2B to B2C and a potential stake sale in the O2C business will usher in the next investment cycle in Reliance Industries.

The brokerage said Jio should further consolidate its leadership position with 25% EBITDA CAGR and gain 450 bps revenue market share to 42% by FY23.

With organized retail only 12% of overall retail and Reliance Retail bigger than the next 10 retailers combined, it is in pole position for growth leadership, the brokerage said. "Their contribution in consolidated EBITDA should increase from 37% in FY20 to 49% in FY23," said Jefferies.

Jefferies said liabilities have reduced adequately and proceeds from a potential minority stake sale in its O2C business to Aramco will create a large war chest.

"Going forward, we expect Jio's capex to moderate owing to leadership in network capex, recent large spectrum acquisition and moving fiber related capex to an InvIT. This should help Jio turn free cash flow positive FY22 onwards," said Jefferies. "The energy business should also generate strong free cash flow as the margin environment recovers. We forecast over US$6 billion per annum of free cash flow generation at consolidated level from FY22 onwards," said Jefferies.