Reliance Industries Ltd. share price forecast

Positives from the AGM include a clear succession plan, supercharged 5G rollout, restart of O2C investments, and targets in new energy

Reliance Industries (RIL), in its latest AGM (on 29 Aug’22), has announced a slew of new initiatives across businesses, along with the rolling out of 5G network from Oct 2022 in key cities (pan-India rollout by Dec’23).

A look at Reliance Industries’ (RIL) FY22 annual report provides some pertinent insights on the way the company’s character has transformed over the past 3-4 years.

Reliance Industries Ltd. is one of the largest private sector companies in India.

RIL captured upsides in refining margin and gas prices in Q1, but an increase in tax rate and Jio depreciation resulted in a miss on net income

Persistent Systems: Persistent Systems (PSYS IN) continued its industry-best growth momentum with over 9% CQGR over the past five quarters, with 11.1% QoQ USD revenue growth in Q1FY23. PSYS' strong organic growth (+5.6% QoQ) offset the decline in IP-led revenue (-12.8% QoQ and 7% of revenue), which was impacted by lower royalty revenue. Key positives include (1) strong deal bookings (highest-ever TCV) with USD 394mn TCV at +9% QoQ; (2) growth momentum aided by inorganic activity (Data Glove & MediaAgility acquisition augmenting Microsoft and Google cloud business units); (3) lower dependence on top client (12% of the revenue) synchronous with lower IP-revenue mix; and (4) large client mining (USD 5mn+ clients up 2.5x in last three years). PSYS has nearly doubled its profit and 75% increase in headcount over the past two years (FY20-22). PSYS' profit is expected to rise by over 60% over FY22-24E, while revenue could comfortably cross the USD 1bn threshold in FY23E, translating into a larger participation (complemented by the recent acquisition). PSYS is our top pick in mid-tier IT and our TP is INR 5,090, valuing the company at 35x FY24E EPS, supported by ~27% CAGR in revenue and earnings (industry leading and only trailing TELX's growth), which is slightly lower than its historical PEG of 1.4x. IndiaMART InterMESH: IndiaMART posted an in-line quarter, revenue growth remained strong at +11.5% QoQ (+6.5% organic), and the margin was stable at 29%. The investment in sales and channel partner network is yielding results, added ~10.3K paid suppliers in Q1. This was the second...

We use EV/EBITDA to value downstream at Mar-24E EV/e, retail on peer benchmarked EV/e and E&P and Jio on DCF. The stock is currently trading at 10.3x Mar-24E EV/EBITDA and 18.6x Mar-24E EPS. Our ADD rating on Reliance Industries (RIL) with a price target of INR 2,860/sh is premised on (1) recovery in the O2C businesses; (2) continued EBITDA growth in the digital business, driven by improvement in ARPU, subscriber addition, and new revenue streams; and (3) potential for further value unlocking in the digital and retail businesses.

Reliance Industries (RIL) reported a very strong 63% YoY surge in EBITDA to a record Rs380bn and 41% YoY growth in net earnings to Rs194.4bn (EBITDA +21% QoQ / PAT +8% QoQ). The record performance of the OTC segment, with all-time high benchmark GRMs of US$20.8/bbl (up US$12.7/bbl YoY), was the key driver of the company’s highest-ever segmental EBIT of Rs180.16bn (up 73% YoY, 45% QoQ), even as petchem margins were muted

We use EV/EBITDA to value downstream at Mar-24E EV/e, retail on peer benchmarked EV/e and E&P and Jio on DCF. The stock is currently trading at 10x Mar-24E EV/EBITDA and 17.6x Mar-24E EPS. Maintain ADD. Month-to-date, Reliance Industries' (RIL) stock has underperformed the Sensex by ~9% because of levy of Special Additional Export duty (SAED) on exports of petrol, diesel and ATF. We believe the recent correction is overdone and, hence, reiterate our ADD rating on RIL with a target price of INR 2,825/sh, premised on (1) recovery in the O2C businesses; (2) improvement in ARPU, subscriber addition, and new revenue streams; and (3) further value unlocking in the digital and retail businesses.