Reliance Industries Shares Jump Most In Two Years As Brokerages Upgrade Stock Rating On Plan To Become Net Debt Free

Shares of Reliance Industries Ltd. rose the most in more than two years as analysts cheered billionaire Mukesh Ambani’s “aggressive” road map to make the oil-to-telecom conglomerate net debt free in 18 months.

Also, the company’s plan to list its consumer arms—Reliance Jio Infocomm Ltd. and Reliance Retail Ltd.—is expected to unlock more value for the stock, according to brokerage reports.

Among other plans, Ambani announced the rollout of Jio GigaFiber from Sept. 5 that will offer free voice calls for life from landline phones, high-speed broadband and free high definition TV and dish with minimum monthly subscription of Rs 700.

Shares of Reliance Industries stock gained as much as 9.3 percent—the most since February 2017—compared with a 0.6 percent drop in the benchmark Nifty 50 Index.

Here’s what brokerages have to say…

Macquarie

• Upgraded to ‘Outperform’ from ‘Neutral’; hiked target price to Rs 1,370 from Rs 1,230 apiece.
• Aramco transaction will allay concerns on RIL’s growing net debt.
• Leverage does fall, however, don’t see zero net debt.
• Transformation of RIL to the likes of Alibaba/Amazon/Softbank etc. is well underway.
• Cautious stance on RIL’s free cash flow outlook remains.

Jefferies

• Maintained ‘Underperform’ with a target price of Rs 990 apiece.
• Deleveraging target more aggressive.
• Expected a more gradual and extended reduction in liabilities than what Reliance targets.
• Remained ‘Underperform’ on rich valuations, modest return on capital employed and a likely slow rise in free cash flow.

Centrum Broking

• Maintained ‘Buy’ with a target price of Rs 1,430 apiece.
• Saudi Aramco deal — structural de-risking of downstream portfolio.
• Sought clarity on debt to be attributed and exact structure of securities that would be issued to Aramco.
• Fibre-to-the-home launch, retail commerce plans and listing — multi-pronged value unlocking move.
• Valuations are attractive and deleveraging adds undeniable heft to the balance sheet.

UBS

• Maintained ‘Buy’ with a target price of Rs 1,500 apiece.
• Moving to new pastures with leaner balance sheet.
• RIL is on course for capex discipline and rightsizing of balance sheet.
• Focus on consumer businesses: internet of things, broadband and new commerce.

Emkay Global

• Maintained ‘Hold’ with a target price of Rs 1,375 a share.
• Aramco deal, JioFiber and deleveraging road map positive.
• Fibre offerings affordable and competitive but awaiting details .
• Premium valuations by Aramco, deleveraging road map, Ebitda, CAGR target and zero net debt could lead to a further re-rating.

Nomura

• Maintained ‘Buy’ with a target price of Rs 1,600 apiece.
• Road map towards zero net debt a positive.
• Refining/petchem deal valuation of $75 billion in line.
  Aramco to get 20 percent economic interest in refining and petchem division; but division may not be demerged soon.
• Pro forma, the deal to be 6 percent earnings per share (dilutive) for RIL on a standalone basis for financial year 2020-21.

BoB Capital

• Upgraded to ‘Buy’ from ‘Add;’ hiked target price to Rs 1,430 from Rs 1,335 apiece.
• Factor in deleveraging initiatives that would yield $16 billion in cash inflow for RIL in financial year 2020-21.

Morgan Stanley

• Upgrades to ‘Overweight’ from ‘Equal Weight’ but maintained target price at Rs 1,349 a share.
• Upgraded on recent correction in share price.
• Refining market is rebalancing, cheaper ethane feedstock could drive upside.
• Faster asset monetisation could surprise.

Credit Suisse

• Maintained ‘Underperform’ but hiked target price to Rs 1,028 from Rs 995 apiece.
• Higher Aramco valuation led to a hike in target price.
• Jio network monetisation to start in FY20 for home broadband, enterprise services, and internet of things.
• No commerical timeline announced for new commerce.

Kotak Securities

• Upgraded to ‘Buy’ from ‘Sell’ and hiked target price to Rs 1,425 from Rs 1,125 a share.
• Kick-starting the process of deleveraging through divestments and culmination of capex cycle.
• Enhanced visibility from rollout plans for JioFiber, enterprise business, internet of things and new commerce.
• Recent sharp correction provides an opportunity to ‘Buy’.