Reliance Industries' share price seen to rally over ₹3,000. What Jefferies recommends.

India's top valued company Reliance Industries Ltd's (RIL) shares outperformed Nifty by about 4% in 2022. Global brokerage Jefferies' sees potential earnings upside from RIL's O2C if China's demand recovers by mid-CY2023 and export duties are eliminated. 

“We forecast 18% EBITDA growth in FY24E with 21% in Retail on the back of floorspace growth and 24% in Jio on tariff hike and home broadband traction. Valuation has moderated imputing little value to green energy in our view. Borrowings likely will rise," the note stated. Jefferies has maintained its Buy rating on RIL shares with a target price ₹3,100, implying more than 22% upside from the current level.

The brokerage expects Jio to deliver 19% YoY rev growth led by tariff hikes in the mobile segment and continued traction in non-mobile segment. 5G pricing/adoption and its impact on market dynamics is key monitorable. The timing and quantum of next tariff hikes and Jio's response to Bharti's rural expansion would also be key focus areas, it highlighted.

For O2C business, Jefferies expects gradual recovery in petrochemical margins in 2H2023 as Chinese demand recovers. “A revival of petrochemical margins to cycle-average could add $ 1bn annualized to O2C Ebitda over FY23E base."

Meanwhile, for retail, revenue growth is seen to remain strong at around 25% driven by improvement in store throughput and expansion in merchant network and product assortment in new commerce's expansion is expected. 

Mukesh Ambani chairs and runs Reliance Industries, which has interests in petrochemicals, oil and gas, telecom and retail. Almost 60% of Reliance’s revenue comes from oil-refining and petrochemicals, though, the conglomerate has been reducing its dependence on oil-refining by diversifying into retail, telecommunications and technology, and is also pivoting into new energy business. Ambani last year unveiled plans to spend $75 billion on clean energy projects over the next 15 years.

Ambani also unveiled mega investment plans and outlined a succession plan, positioning the conglomerate for its next growth phase to double the group’s value by 2027, or the end of what it termed its golden decade.

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