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In the last year, Reliance Industries (RIL) has seen strong deleveraging on the back of value unlocking in the consumer business, which has aided valuations, as per brokerage and research firm Motilal Oswal. The consumer business – Reliance Jio and Reliance Retail are richly valued given their strong growth potential.
The brokerage sees price hikes in the Telecom business and revival in the Retail business – led by strong growth potential in JioMart – as key levers for the stock over the next two years. The strong earning levers in the consumer business should support the stock. The brokerage values the stock at ₹2,900 (target price) and reiterates its Buy rating.
“RJio, the telecom vertical of Reliance Industries, is in a sweet spot as peers Bharti and VIL (Vodafone Idea) have taken a 20% tariff hike. We expect RJio to follow suit, garnering a 22%/7% upside on RJio / consol EBITDA. Further, improving traction in JioPhone Next should be an aiding factor," the note stated.
On the other hand, the retail segment is seeing strong revival across categories during the festive season, accelerated store adds, and healthy scale in the digital business – these factors should drive sharp growth from Q3FY22, as per Motilal.
Meanwhile, GRMs are weakening amid a worsening COVID situation in Europe. However, the petrochem segment should offset the impact on the back of good demand and continued delays in upcoming capacities.
While refining is expected to remain subservient to the fluctuating oil demand, higher petrochem margins would keep the profitability intact, the note added. Margins are expected to remain high over the short term, as expansions in the US and the Middle East reach completion, the brokerage expects petrochem margins to subside.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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