July5 , 2022

RIL share price correction a buying opportunity: Jefferies

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Shares of Reliance Industries (RIL) have corrected about 12% from its recent high. Multi year-low inventories, declining Russian exports, muted Chinese exports, lower diesel production in Europe and delays in commissioning of ME refineries are, in global brokerage Jefferies’ view, tailwinds to refining margins in CY22. 

The brokerage house has maintained its Buy rating on RIL shares with a target price of 2,950 as it believes the recent stock price correction offers opportunity.

“RIL is a key beneficiary of energy inflation, with every $1/bbl improvement in annualized refining margins adding an estimated $ 400-450 mm to RIL’s Consol EBITDA (2% uplift). Initial estimates suggest RIL could deliver 60% sequential growth in O2C Ebitda in 1QFY23E with likelihood of earnings upgrade,” the note stated.

Jefferies believes RIL has sustainable competitive advantage on scale economics, cost leadership, financial strength, recurring positive FCF FY22E onwards. Its new growth engines with large addressable markets: Digital in Jio, e-commerce in RR, COTC in energy Interesting optionalities with likely financial services foray and partnerships.

India’s top valued company RIL reported over 22% surge in its fourth-quarter profit at 16,203 crore on the back of bumper oil refining margins, steady growth in telecom, digital services and retail business. The Mukesh Ambani-led conglomerate’s revenue from operations rose 37% to 2.11 lakh crore during the quarter ended March 31, 2022. It became the first Indian company to have crossed $100 billion revenue in a year.

Last week, another global brokerage JP Morgan upgraded RIL shares’ rating to overweight from Neutral, driven by global view of strong refining environment as it believes Reliance Industries is among the few large companies in India with a positive earnings revision cycle ahead, given the strong refining and gas environment.

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.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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