Goldman Sachs, CLSA raise price targets on RIL

Mumbai: Goldman Sachs has raised its one-year target price for Reliance Industries by 31 per cent to Rs 2,325 while CLSA has simultaneously hiked the target price and downgraded rating to ‘buy’ from ‘outperform’. Domestic securities firm Edelweiss has downgraded the stock to ‘hold’ with a one-year target price of Rs 2,105.CLSA has increased its target price from Rs 1,753 to Rs 2,250, a 4 per cent upside from current levels. The brokerage has valued Reliance Retail’s business at $70 billion and the Reliance Jio business at $100 billion, 50 per cent higher than the values at which recent deals were struck. CLSA said there could be time for a pause after a 400 per cent rally in seven years and a 150 per cent rally in four months. “This makes us downgrade our rating from ‘outperform’ to ‘buy’ even as we project Reliance’s market cap to rise to $220 billion by March 2022 in our lenient valuation framework,” the brokerage said in a note on July 28. “While its long-term promise and underweight position in portfolios may support its stock price, large valuation surprises may be difficult in the near term.”Goldman Sachs has retained a ‘buy’ on Reliance and raised target price by 31 per cent. It said it sees more upside potential in the stock and expects Ebitda (earnings before interest, taxes, depreciation and amortisation) to double by FY25 driven by hyper growth from consumer businesses.Not surprisingly, both Goldman and CLSA are bullish on the consumer and telecom businesses. “We believe RIL’s existing dominance in telecom and offline retail combined with the online traffic dominance of partner Facebook can create the fastest-growing internet platform in India,” Goldman said. It forecast RIL’s online gross merchandise value (GMV) to reach $35 billion in FY25 with a 31 per cent market share driven by 51 per cent share in online groceries. It added that RIL is introducing disruptive offerings like JioMart, which is reminiscent of the growth in India’s data consumption that followed Jio’s launch.77231995However, Edelweiss has downgraded the stock to ‘hold’ with a target price of Rs 2,105. Edelweiss, which turned positive on Reliance Industries in 2016, said that the stock’s primary triggers — deleveraging, asset monetisation and digital momentum — have played out.“...prior to Jio’s mobile telephony launch, investors were discounting invested capital by 30–50 per cent, effectively valuing Jio at a negative equity value. The market is now extrapolating that RIL can endlessly create value by doing more of the same and is incrementally ignoring risks,” said Edelweiss.Reliance Industries trades at a trailing 12-month price-to-earnings ratio of 47.2 times.Edelweiss believes that Reliance Industries’ valuations are unjustifiably high at a time when risk has, in fact, risen.“...the market is baking in a very high earnings CAGR of 35 per cent for Jio Platforms and 31 per cent for Reliance Retail sustaining over the next ten years, which by any measure is a tall ask... Street’s ‘buy’ recommendations on the stock are nearly at an all-time high, another sign of extreme exuberance. History suggests that a stock price fall is in order,” said Edelweiss.

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