Compelling buy! RIL can rally up to 32%, says Kotak Securities

“After the recent correction [RIL -20 per cent, Nifty -10 per cent], we believe at CMP, the market is not ascribing any value to RIL’s New Commerce/FMCG forays, New Energy or duopoly benefits in R-Jio. It also seems to factor in a much lower multiple (25 times EV/EBITDA versus our base case valuation of 32.5 times) for retail and ₹500 billion higher net debt,” the note said.

Shares of RIL were trading 1.84 per cent higher at ₹2,243.90 on the National Stock Exchange in Monday’s trade. But the stock has corrected more than 12 per cent year-to-date and hit a 52-week low of ₹2,180 on 20 March, 2023.

RIL underperformance puzzling

Kotak Equities said the recent underperformance of Mukesh Ambani-led RIL has been puzzling, as the outlook across key verticals is sanguine. The brokerage has reiterated a ‘Buy’ call on the stock with a lower fair value of ₹2,900 from ₹3,000 earlier.

The brokerage has lowered its 2024-25 EBITDA by 4-5 per cent, largely driven by delayed tariff hike assumption in Reliance Jio.

“We revise our FV to ₹2,900 (from ₹3,000) largely due to a cut in R-Jio valuation and higher net debt assumption,” the note stated.

With the 5G roll-out completing this year, Kotak thinks the capex would moderate from current elevated levels, but would remain at ₹1.0-1.1 lakh crore, driven by expansion in retail and new energy investments.

For the energy segment, the brokerage said that earnings would likely remain robust with high margins, lower export tax in refining, rising volumes, elevated prices in E&P and recovery in petchem spreads.

In the telecom vertical, the brokerage expects a rising competitive intensity and likely delay in tariff hikes until 2024 elections. But this would effectively lead to duopoly and result in accelerated market share gains for Reliance Jio, the brokerage said.

In the retail business, recent acquisitions, store expansions and entry in new verticals prompt the brokerage to believe that RIL will have market leadership across several verticals.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.