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Motilal Oswal ups Reliance’s price target by 16% on revenue growth

By Anoop Agrawal

08:28, 29 November 2021

Crowd at reliance petrol pump district
Resumption in strong demand in the retail segment after COVID lockdowns - Photo: Shutterstock

Indian stock brokerage and asset manager Motilal Oswal Securities has raised its 12-month price target on the oil-to-telecom conglomerate Reliance Industries by 16% to INR2,900 citing growth in revenue across the key businesses.

Motilal Oswal has cited resumption in strong demand in the retail segment after the COVID-led lockdowns, rise in demand for petrochemical products and launch of the company’s smartphone earlier this year boosting the revenue in coming years prompting a price-target upgrade.

“RIL is trading at price to equity ration (P/E) of 19 times on the basis of estimated earnings of year to March 2023. The strong earning levers in the consumer business should support the stock. We value the stock at INR2,900 and reiterate Buy,” Motilal Oswal said in its research report.

Reliance Industries has repaid debt and deleveraged its balance sheet which has boosted valuations. The Consumer business – RJio and Reliance Retail - are richly valued given their strong growth potential. Price hikes in the telecommunication business are expected and revival in the Retail business led by strong growth potential in JioMart as key levers for the stock over the next two years, the brokerage said.


Reliance Jio Infocomm, which operates the telecommunication services under the brand Jio, raised tariffs by 20-25% over the weekend, a move anticipated by Motilal Oswal after smaller rivals Bharti Airtel and Vodafone Idea increased their tariff by a similar scale last week.

RJio’s revenue growth decelerated in the last few quarters due to the moderation in subscriber additions. However, with the latest tariff increase would push growth as Jio has achieved market leadership and would monetize the large pool of subscribers to improve profitability. Motilal Oswal said it may revise upwards its annualised operating margin by 22%.

“The success of JioPhone and new digital investments should offer steady growth opportunities. We expect revenue growth of 10% and operating profit growth of 16% over the next four years ending March 2024 on the back of an annual 8% subscriber growth in the same period,” Motilal Oswal said.

The company is keen to target a large chunk of the 300-million feature phone market through JioPhone Next. Motilal Oswal expects the company to introduce new versions to revive subscriber additions once the semi-conductor shortage eases.

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Reliance Retail’s performance over the past five year offers huge scope of growth, given its enhanced digital capabilities and new businesses and verticals, Motilal Oswal said.

According to Motilal Oswal, the Indian Retail market has seen strong revival from COVID-19 in the second phase, unlike the first phase, with the festive season seeing double-digit growth across categories. Reliance Retail added nearly 900 stores in April-September period and may accelerate to add 1500–2,000 stores by March 2022.

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Online segment now accounts for 20% of the core retail revenues and has achieved a scale closer to the category leaders due to the supply chain of a deep physical retail network and aggressive expansion in warehousing capacity. Motilal Oswal sees operating profit of the retail segment growing 28% annually for next four years and the revenue growth at 25% in the same period.

Reliance Jio’s recent foray in Pharma brings in huge opportunity because of the high-margin structure and the wide gap in the pricing of generics and patented products. That should provide a strong growth lever.

To boost presence in the retail and digital segment the flagship Reliance Industries has been on a virtual buyout spree. In the current year Reliance acquired digital platform JustDial, neighborhood grocery retail business 7-Eleven, beauty and furniture business Urban Ladder.


Worsening covid conditions in Europe have hit demand for petrochemical products and impacted operational capabilities of Reliance Industries. Refining margins per barrel fell to as low as $3-4 per barrel in November from $7.5 per barrel in October, Motilal Oswal pointed. The average has been $6 so far in November. The brokerage said that some of the losses have been curbed due to delay in upcoming capacities and revival in slight demand.

While refining is expected to remain subservient to the fluctuating oil demand, higher petrochem margins would keep the profitability intact, the brokerage said.

Back home, Indian government has already raised the gas price ceiling to $6.13/mmbtu for the second of the current financial year ended March 2022. Reliance has said earlier that the next round of price revision could see the ceiling higher from current level. A high production level and improved realization would result in better profitability in the segment in the near future, Motilal Oswal said.


Read More: Indian markets to look out for crypto law, GDP data this week


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