Axis Capital initiates buy rating on RIL; increases target price by 20% to Rs 3,514

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Axis Capital has initiated a "buy" rating on Reliance Industries Ltd and raised its target price by 20 percent to 3,514 per share on robust earnings growth, positive cash flows, and expanding return on invested capital.

The brokerage is also bullish on unit Reliance Retail Ltd, citing strong revenue/EBITDA (earnings before interest, taxes, depreciation, and amortization), growing digital presence, and expansion in the packaged consumer goods segment. It also expects telecom unit Reliance Jio to gain more subscribers, boost average revenue per user (ARPU) organically and through acquisitions, and leverage its wireless broadband service JioAirFiber.

Axis Capital also expects significant growth in the services business. It anticipates a rebound in the petrochemical cycle and robust refining margins for the O2C segment. In the new energy sector, the brokerage projects a potential EBITDA opportunity of $3.6 billion by 2030.

Axis Capital highlighted Reliance Retail's significant market share gain in organized retail, driven by robust network expansion and impressive growth rates. It expects growth to be driven by digital advancements, FMCG expansion and improved return on invested capital (RoIC).

"Reliance Retail with an impressive 660 bps market share gain in total organized retail on robust network expansion (~30% CAGR). Our bullish stance is supported by strong 20/25% CAGRs in core revenue/EBITDA (FY23-26E), rising digital salience (19% of revenue), the optionality to scale-up in FMCG, and improving RoIC (we bake in ~250 bps expansion)", Axis Capital said in its latest note.

For Jio Infocomm, Axis expects healthy growth from subscriber gains, ARPU growth, and services expansion, including 5G. It expects strong growth potential in the 5G segment.

"Jio has built a formidable portfolio of services with in-house development, acquisitions, and partnerships (Google, Microsoft, etc.) – we expect to see strong growth. It is early days for the 5G stack, but we are sanguine about it," the Axis report said.

The report highlighted significant opportunities in the new energy sector. In new energy, captive demand has set the stage for expansion, and the company will aim for a sizable third-party market, the report said.