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The broking firm has set a target price of Rs 3,170 on RIL, indicating a possible increase of 22 per cent in the counter as against Wednesday’s previous close of Rs 2,596.30.
Given the strong refining and gas environment, RIL is one of the few large companies in India with a positive earnings correction cycle, the brokerage firm said in its latest report.
The brokerage said an improved earnings outlook for the refining and upstream gas businesses and a strong hold of valuations for the non-energy or consumer business are the key factors responsible for the upgrade.
In contrast, the two major risks for the company are a fall in refining margins to January 2022 levels and a sharp decline in consumer business valuations.
JP Morgan expects RIL to outperform Nifty 50 in the current year, which has strong potential for an upgrade in earnings estimates. It has increased its earnings estimates by 19 per cent for FY 2022-23 and by 17 per cent for FY 2023-24.
“Earnings forecasts indicate a sharp decline in diesel and gasoline from current record levels, but RIL is one of the best-positioned refiners globally to buy and process arbitrage barrels, diesel heavy slates and export focus. Given the potential.”
RIL’s upstream business should benefit from rising domestic gas prices and higher volumes. “Overall we see the O2C business reporting improving profitability for the next few quarters.”
RIL underperformed the Nifty 50 in 2021 as the stock gained 19 per cent as compared to a 24 per cent rally in the index.
“Although higher oil and GRMs are positive, we previously expected a global technical selloff to negatively impact RIL’s consumer valuations and cancel near-term earnings. However, RIL’s consumer valuations have been good,” Said it.
At the upcoming Annual General Meeting (AGM) of India’s largest conglomerate, JP Morgan believes that the discussion of demergers or IPOs of consumer businesses – telecom and retail – is likely to take center stage.
“We do not expect any concrete timeline from this year’s AGM on IPOs of consumer businesses (Jio, Retail), even though media reports talk about IPOs of these businesses,” it said.
The foreign brokerage in its report has valued O2C business at $83 billion, retail business at $121 billion and Jio Mart at $40 billion.
It has also set a 2x investment value for the proposed green energy/renewable investment. “We do not manufacture at this time any holding company exemptions,” the firm said in its report.
(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of The Economic Times)
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