Strong earnings, recent tariff hikes by Jio and Saudi Aramco deal have kept investors and brokerages positive on Reliance Industries (RIL). Currently trading around Rs 1,500 per share, the company’s stock is expected to rise to Rs 2,010 per share by December 2020, according to global brokerage firm CLSA.
In its latest report, CLSA has maintained a ‘buy’ call on Reliance Industries, saying that it expects a 28 percent upside in the stock.
Despite being a growth leader, the company trades near the bottom range of price-to-earnings ratio (PE) and PEG and is the most attractively priced largecap growth stock in India, the brokerage firm believes.
The report, that was prepared after scanning 65 companies with a market capitalisation above $5 billion under CLSA’s coverage, showed that 37 stocks are expected to deliver more than 10 percent profit before tax (PBT) growth in the next three years. Reliance Industries’ 24 percent PBT CAGR puts it at eleventh on this list, the report showed. However, it added that seven of the top 10 companies showed notable PBT de-growth in FY16-19.
The brokerage further screened these 37 names to get to ‘consistent growth stocks’, and limited the list to companies with more than 10 percent PBT growth in the last three years, culling the list to 16 (The brokerage has taken PBT instead of PAT to avoid impact from the recent corporate tax cut in India).
RIL ranks second in the list after IndusInd Bank on the basis of FY19-22 profit before tax (PBT) growth.
CLSA said that RIL’s 45 percent of FY22 EBITDA is expected to come from telecom and retail, while 80 percent of incremental EBITDA aided from telecom and retail could drive further re-rating. The closure of $35 billion deals and the start of pet coke gasification and strong subsidiary addition are triggers, it noted.
Earlier this month, the brokerage increased the company’s target price to Rs 2,010 from Rs 1,710 post the announcement of tariff hikes. The brokerage also raised its earnings per share (EPS) estimate by 1-8 percent.
CLSA said that the tariff hike will boost its earnings before interest, taxes, depreciation, and amortisation (EBITDA) by $1.1-1.3 billion.
In November end, RIL hit a market capitalisation of Rs 10 lakh crore, the first Indian company to achieve the milestone.
The company in August had announced plans to cut its net debt to zero in 18 months through various measures, including a stake sale in its oil-to-chemicals business to Saudi Aramco.
The stock price of the company has gained over 40 percent in the last 1 year as well as in 2019.
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