Money making opportunity? Bernstein raises target price for Reliance Industries

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Brokerage firm Bernstein revised the target price for Reliance Industries (RIL) upward after the energy-to-telecom behemoth announced a plan to invest $10 billion in a new energy business over the next three years. It believes that clean energy has the potential to be value accretive if the company can put it off. It has set a target price of Rs 2,830 (Rs 2,470 earlier). Based on capex on clean energy business, Bernstein believes that the clean energy business could be worth $36 billion or Rs 395 per share.

RIL announced its long-term plans during the AGM last month with an ambitious target for the new energy business. The key announcements were the $10 billion capex in the new energy business across solar, batteries and hydrogen in the next three years. Other big announcements were the launch of the new smartphone JioPhone Next and the induction of Aramco Chairman to the RIL board. However, no announcements were made on the potential IPOs of the telecom and retail segments.

“For FY22, we expect Reliance will deliver O2C EBITDA of Rs 52,200 crore (up 90% YoY). We remain optimistic that a deal will come together with Aramco albeit at a slightly lower valuation. Retail business is expected to grow 3 times in the next 3-5 years, robust CAGR of 35%-40%. Digital or new commerce continues to scale up and contributes around 10% of sales,” Bernstein said.

Outlook

JioMart has reached peak orders of 0.65 million per day. RIL plans to add 10 million merchants in 3 years. “Funding is not an issue for Reliance given the current balance sheet. The company is almost debt-free and generate a free cash flow of Rs 65,600 in FY22 and growing to Rs 1.5 lakh crore by FY26,” Bernstein said in a report.

Shares of the company traded 0.94% higher at Rs 2102 in the afternoon trade on July 16. On the other hand, the benchmark BSE Sensex was down 123 points, or 0.23%, at 53,035.