Reliance Industries: Formidable strategy; execution holds the key

29 Aug 2023 , 11:59 AM

Recommendation: Buy; Target price: Rs 2761

During its 46th AGM, RIL announced the launch of Jio AirFiber, green-energy pursuits (wind turbines, LFP battery chemicals, CBG plants, etc.), a phased approach to the first solar PV module by 2025, as also targeting 100GW by 2030. The intent of bringing more strategic investors on board in retail was also shared. Although the defined timelines for the green-energy initiatives will be viewed positively, silence on the long-awaited Jio/Retail demerger left a void. Analysts of IIFL Capital Services FY24-FY26 PAT forecast remains intact with base case SoTP of Rs2,761/share, and will actively track the key milestones. 

Focus on value creation: During RIL’s AGM, Chairman Mukesh Ambani shared his vision for the company and the broader contours of its strategy. He stated that the company’s prime objective is to generate value for stakeholders through disruptive tech, innovation, and prudent capital allocation. With RIL’s mega capex cycle announcements phase now behind, sweat assets are to be in focus. Mr Ambani also affirmed his role as the company’s chairman for an additional five years, during which he will actively engage in training and mentoring the next generation of leaders. 

Firm timelines; execution holds the key: RIL announced: 1) the launch of Jio AirFiber on 19th September. 2) Gas-production surge to 30mmscmd (from the current 21mmscmd) from KG basin, stays on course. 3) Fullyintegrated solar manufacturing ecosystem (PV modules, cells, wafers, glass, etc.) in a phased manner by 2025. 4) Foray into wind turbines by capitalising on its benefits of manufacturing carbon fibre. 5) Setting up of battery giga factory by 2026 (LFP-based battery chemicals, cells, etc.). 6) 100 CBG plants in the next five years. 7) Upbeat outlook on retailing business; indicated on further global strategic investments. However, no indication on any timelines for the demerger of the Telecom and Retail businesses, which was keenly awaited; as such, meaningful immediate triggers seem to be missing. 

Maintain earnings: Analysts of IIFL Capital Services maintain their FY24-26 consolidated PAT growth of 8% p.a., based on: 1) Steady O2C, ramp-up in E&P. 2) 10% p.a. growth in Jio ARPU. 3) 19% p.a. growth in the Retail business; no external sales of PV cells are modelled until then (captive use). Base case SoTP is Rs2,761/share and can move up, provided there are surprises on growth + improved disclosures.