Mukesh Ambani’s Reliance Industries Ltd. (RIL) has seen increased interest from foreign portfolio investors in the last one year. Foreign Portfolio Investor’s (FPI) shareholding in RIL has jumped 1.59% in the January-March quarter, from a year-ago period. Meanwhile, mutual funds have trimmed their stake in the oil-to-telecom conglomerate by 1%, during the same period. This is in line with a recent report by global investment bank Jefferies, where it says that overseas investors are more constructive on the stock. Jefferies has maintained a price target of Rs 2,600 per share on RIL stock. Currently, RIL trades at Rs 2,018 per share.
“Our interactions with 100 investors upon assuming coverage of RIL indicate overseas investors are significantly more constructive compared to their domestic counterparts,” the report said. Foreign investors continue to see RIL as the local champion with a strong footing in the retail as well as telecom industry. On Jio Platforms, Jefferies said that most foreign investors are focused on its telecom operations rather than digital services. “With most investors not paying attention to digital services, their scale-up could be a source of positive surprise,” the report added. Coming to RIL’s traditional cash cow, the oil to chemicals business, investors are patiently waiting for a timeline of the stake sale to Aramco and the expected Capex plan in RIL’s new cracker technology.
RIL also maintains an edge over competitors in the retail segment. “Reliance Retail’s lead over the competition is evident from the fact that its retail area footprint is ~2x that of Future Retail and ~4x of DMart which are other large & formidable players in the retail space,” Jefferies said. At $6 billion in revenues, Reliance Retail accounts for a third of India’s organised electronics retail.
Jefferies sees three key triggers ahead for the stock. The initial triggers, according to the report is the launch of an affordable smartphone by Jio in partnership with Google. “We expect this to coincide with the AGM. The recent large spectrum acquisition to overcome congestion in some tier 1 circles, tariff cuts in the feature phone segment and the affordable smartphone will allow them to accelerate subscriber adds,” they said.
Further, the Future Group deal is another key trigger for RIL. Reliance Retail and Future Group could combined account for 10% of organised sector FMCG sales, according to the report. The last trigger is expected to be the oil to chemical stake sale. Analysts at Jefferies expect the transaction to close this financial year if crude sustains at current levels.
Reliance Industries stock price has corrected 16% from its 52-week high and has underperformed the Nifty 50 by 40% since October last year. “Covid-related restrictions are expected to weigh on Jio and RR earnings in the first quarter of this fiscal year but decade-high polymer margins provide near-term support,” the report said. Jefferies has a ‘Buy’ call with a target of Rs 2,600 per share on RIL. Reliance Industries will report its January-March quarter earnings on April 30.