Reliance Industries hit a record high of ₹1,647.85, advancing 2 percent, on the BSE on Tuesday. So far in the financial year 2020-2021 (FY21), the stock has outperformed the S&P BSE Sensex by surging 46.5 percent till Monday, as against a 13 percent rise in the benchmark index, as per ACE Equity data. Their share price growth has been sharper at 80 percent from the recent low in March 2020 and has been fuelled by the firm’s ability to garner 10 foreign investments in its subsidiary Jio Platforms for a whopping ₹1.04 trillion, from leading global investors. The rally may not get over just yet. According to Morgan Stanley, multiple triggers – pickup in energy cash flows, increased traction in omnichannel retail, asset sales, and rise in telecom average revenue per user (ARPUs) – could further drive the stock.
Mayank Maheshwari, equity analyst at Morgan Stanley, along with Parag Gupta and Sulabh Govila said in a report that One-year forward price-to-earnings (P/E) and price-to-book (P/B) are now near peak cycle levels, but return on equity (ROE) and earnings growth are significantly higher than their history and other peers. Maheshwari also said that Monetisation of the remaining assets, after the sale of nearly $14 billion of assets and ₹53,000 crores rights issue, would cut net debt to near zero. Potential debt reduction of nearly $22 billion can be seen in the next nine months given the completion of a sale of a 50 percent stake in retail fuel stations to BP, completion of stake sale in Jio Platforms and tower InViT stake sale; positive free cash flows will be generated from steady energy utilization and slowing investments.
After the pandemic caused by COVID-19 settles down, the recovery of demand will be seen in the consumer retail segment domestically as well as globally. Reliance is also looking forward to small and medium digitized enterprises. Reliance’s partnership with Microsoft, Facebook, and its offline retail facilities will not only raise revenues for digital but also support the retail business.
Goldman Sachs’s analysts peg grocery retail of Reliance gross merchandise value at $83 billion by FY29, up from $5 billion in FY20 due to continued store expansion which helped in the growth of market share in the offline grocery, and rapid expansion of the total available market in online grocery. Moreover, their retail business EBITDA growth is expected to be of 5.6x between FY20-29. Credit Lyonnais Securities Asia (CLSA) also remains bullish on the stock of Reliance and CLSA’s members said that partnership with Facebook-owned Whats App for Jio Mart will help in increasing the convenience and reach of consumers.