Reliance Industries Shares Hit 52-Week High On Jio Financial Listing, Retail Unit Buyback Plans
Earnings will be focused on the "rate of change" from the earnings downgrade to an upgrade cycle, as per Morgan Stanley.
Shares of Reliance Industries Ltd. hit a 52-week high after its decision to reduce equity share capital held by shareholders in Reliance Retail Ltd. and plans to separately list its financial services business.
The shares held by minority investors, other than its promoter and the holding company Reliance Retail Ventures Ltd., in unlisted Reliance Retail Ltd. shall be cancelled and extinguished, according to an exchange filing. The company will pay investors Rs 1,362 apiece.
The company has also set the record date for the demerger of its financial services arm that will be renamed and listed as Jio Financial Services Ltd.
As the downgrade cycle reverses and net debt nears peak, "rate of change" will be a key focus in RIL's earnings, according to Morgan Stanley. Beyond that, it's all about rebuilding confidence in petrochem margins, fuel demand, and monetisation of investments in retail, it said.
UBS, on the other hand, reiterated a 'buy' with a price target of Rs 3,000 apiece, citing that capital reduction in Reliance Retail would improve its valuation.
Shares of Reliance Industries rose 4.39% to Rs 2,749.2 apiece, compared to a 0.55% advance in the NSE Nifty 50 at 1:58 p.m.
The stock rose 4.65% intraday to hit a 52-week high at Rs 2,756 apiece, nearly 100 points away from the life-time high of Rs 2,856.15 apiece.
Total traded volume stood at 4.2 times its 30-day average. The relative strength index was at 77, implying that the stock may be overbought.
Of the 38 analysts tracking the company, 33 maintain a 'buy' rating, three recommend a 'hold' and two suggest a 'sell' on the stock, according to Bloomberg data. The average 12-month consensus price target implies a potential upside of 1.7%.
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Morgan Stanley On Reliance Industries
June quarter earnings will be focused on the "rate of change" from the earnings downgrade cycle in the last four quarters to an upgrade cycle in Q1 FY24.
Net debt nearing its peak will also aid earnings.
Expect investors to shift from "looking at downside risks" to "what is driving upside" for consensus estimates.
Company is expected to invest $17 billion annually, that is, close to its operating cash flow, but with the mix of investment shifting from retail, upstream gas and telecom towards new energy and chemicals.
Estimates Ebitda and net profit in Q1 FY24 to fall by 0.5% and 19% quarter-on-quarter, respectively. Lower diesel margins, which are negated by higher chemical margins and lower ethane costs, will lead the declines.
Brokerage expects consumer retail to also see steady on-trend Ebitda growth and some margin expansion.
With headwinds like windfall tax and ending of destocking cycle, RIL should see oil to chemicals Ebitda decline 4% QoQ, despite the significant correction in refining margins.
Expects no surprises in telecom, with a little changed average revenue per user at Rs 180 QoQ, eight million net subscriber additions in telecom and flat Ebitda margins.
UBS Reiterates 'Buy' On RIL
UBS reiterates 'buy' with a price target of Rs 3,000 apiece.
Reliance Retail is all set to reduce the non-promoter capital in the company, making it a 100% subsidiary of Reliance Retail Ventures Ltd.
A consideration of Rs 1,362 per share has been determined, which is at a 54-60% premium to the valuations obtained from two independently registered bodies by the brokerage.
Brokerage values Reliance Retail Ventures at $110 billion and RIL's 85% stake in it at $93 billion.
This sets the floor price for future value unlocking and should increase the value of the retail business on a sum-of-the-parts basis, according to the brokerage.
Reliance Industries also announced demerger details of its financial services subsidiary. The shareholders of Reliance Industries would get one share of Reliance Strategic Investments Ltd. for every one share owned in RIL.
Brokerage derives the price target from a sum-of-the-parts analysis. It has valued refining and petrochemical on EV/ Ebitda, telecom and upstream on discounted cash flows, and retail on a SoTP basis.
