Mukesh Ambani led Reliance Industries has got a thumbs up from key brokerages. While Jefferies maintains the Buy rating, Kotak has also upgraded the stock to buy. The oil to retail behemoth led by Mukesh Ambani has been underperforming Nifty 50 for quite some time now due to a slowdown in retail and subdued earnings in the oil-to-chemical business. However both the brokerages believe that the worst might be over for Reliance.
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Jefferies has a Buy rating with a target price of Rs 1,660. The brokerage house sees upside of 43% in a base care scenario. This base case price target implies 8x EV/EBITDA growth for O2C Business, 13x for India mobile and 28x for core offline retail businesses. Jefferies also has an upside scenario,where they expect the share price to jump 59% from current levels to a target of Rs 1,850 on the back of better than expected recovery in GRMs/petchem margins, faster consolidation in telecom leads to tariff upside in Jio, pPossible public listing of Jio re-rating valuation multiple and Reliance Retail gaining market share.
1. O2C weakness to reverse: The company has been grappling with weak gasoline demand in China, which weighed on refining profitability. “Refining margins should benefit from 0.9mbpd of refinery closures and improved dd heading into the US driving season. We expect 14% EBITDA growth,” said Jefferies.
2. Reliance Retail growth prospects: According to Jefferies, store rationalisation and B2B consolidation is largely behind, aiding same store sales growth. The growth reported in Q3 FY25 on a strong base should improve going forward, with grocery and electronics strong and F&L improving. In Jiomart, express deliveries are available across 4,000 pincodes with delivery within 40 mins. After contracting in FY25, the retail area should grow single digits in FY26. same store sales growth and area growth should lead to 15% core revenue growth in FY26.
Jefferies said the slowdown in retail business and O2C segment is the sole reason behind the weakness in Reliance Industries’ share price. “Assuming the fair values of Jio and O2C are unchanged since mid-2024, we see the CMP (current market price) imputing only $41 billion EV (enterprise value) to Retail. Assuming a 10% haircut in O2C due to margin weakness,
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