Mukesh Ambani’s Reliance Industries Ltd (RIL) could surge as much as 50% from current levels, according to global brokerage and research firm Jefferies. Value unlocking from the renewable energy push, stake sale in oil-to-chemical business, and maybe even the public listing of Reliance Jio are expected to support the massive rally in RIL stock. Reliance Industries shares currently trade at Rs 2,108 per share. The oil-to-telecom conglomerate recently announced its foray into the renewable energy space, which according to Jeffries, could be helped by government policies and capital subsidy schemes going ahead.
Renewable strategy to maximise value
Reliance Industries has announced a massive Rs 75,000 crore investment into the renewable energy (RE) space. With a strong balance sheet, the company is expected to adequately fund the capital expenditure. “Its per unit cost leadership in conventional energy gives us confidence that it will achieve top quartile unit costs in RE too. We see RIL emerging as India’s most credible RE player,” Jefferies said. The report added that RIL has forayed into the RE space, keeping in mind the early stage nature of these technologies, hoping to ride the success.
Governments across the world are already incentivising investment into renewable energy and RIL is expected to benefit from the same. RIL could benefit from Rs 18,100 crore PLI scheme of providing capital subsidy in Advanced Chemistry Cell battery manufacturing. Furthermore, Electrolyzer manufacturing for green hydrogen may also come under PLI soon. This aid by the government would make the investment economics attractive for RIL, according to Jefferies.
The push into renewables and focus on becoming net zero carbon, would also improve RIL’s ESG score. “Its ESG scores will also improve meaningfully attracting money from ESG funds globally,’ the report added.
The upside scenario pegged by Jefferie, pins a target price of Rs 3,150 apiece on Reliance Industries, implying a 50% upside potential from current levels. To achieve this, Jefferies’ analysts see 5 catalysts, including a strategic stake sale in the oil to chemical business which would help re-rate multiples, recovery in gross refining margins to be ahead of estimates, a faster consolidation in telecom sector leading to tariff upside in Reliance Jio, and a possible public listing of Jio, helping re-rate valuation multiples. Lastly, faster than expected market share gain for Reliance Retail is expected.
Base case scenario puts the target price at Rs 2,540, estimating moderate growth across segments. On the downside, if ARPU becomes lower than expected for Jio while refining and petchem margins see continued impact of the pandemic, the stock is expected to fall to Rs 1,850 per share.
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