CLSA Says ‘Time For A Pause’ On Reliance Industries
CLSA downgraded Reliance Industries Ltd. from a ‘Buy’ to ‘Outperform’, saying the stock may take a pause after its record surge.
The brokerage increased the price target to Rs 2,250, implying an upside of 4%, according to its July 28 report ahead of the company's earnings. The increase factors in high valuation for Reliance Jio Infocomm Ltd., at close to $100 billion, and for Reliance Retail Ltd., at $70 billion.
Reliance Industries has a market value of more than $191 billion (Rs 14.8 lakh crore). Its shares surged more than 400% in the last seven years and more than 150% in the last four months. That latest rally came as it sold shares in Jio Platforms Ltd., the holding company of its digital and telecom assets, to a clutch of investors including Facebook Inc and Google, among others.
Given the recent rally, the stock may take a pause, CLSA said. Its long-term story and underweight positions in institutional portfolios will provide support. A valuation above $70 billion for Reliance Retail could be needed to justify large immediate upside, it said.
CLSA projects a $220 billion market cap for Reliance Industries by March 2022 in its lenient valuation framework.
The brokerage said the share of the organised retail is expected to reach 18% from the current 11%, with the market share of Reliance Retail within this space rising to 33% in grocery, 50% in electronics and 7.5% in fashion. This would give Reliance Retail a market share of 13.7-22.7% within the organised retail space by March 2026, CLSA said.
Reliance Retail is expected to be valued at $72-110 billion by March 2025, and if discounted to March 2022, it will be valued at $72 billion, according to CLSA.
The brokerage assigned this valuation based on the EV/ Ebitda multiple of 27.5 times as on March 2022.
CLSA valued Jio Platforms at $100 billion, a 50% premium to the valuation at which RIL sold shares, and a 15% premium to Bharti Airtel's mobile unit.