RIL share price correction a buying opportunity: Jefferies

Shares of Reliance Industries (RIL) have corrected about 12% from its recent high. Multi-year low inventories, declining Russian exports, subdued Chinese exports, lower diesel production in Europe and delays in commissioning ME refineries are the tailwinds for refining margins in CY22, according to global brokerage Jefferies.

The brokerage maintained its buy recommendation on RIL shares with a price target of 2,950 because it believes the recent stock price correction offers opportunities.

“RIL is a major beneficiary of energy inflation, with each $1/bbl improvement in annualized refining margins adding an estimated $400-450mm to RIL’s Consol EBITDA (2%). could deliver 60% sequential growth in O2C Ebitda in 1QFY23E with opportunity for earnings upgrade,” the note said.

Jefferies believes RIL has a sustainable competitive advantage in economies of scale, cost leadership, financial strength and recurring positive FCF FY22E and beyond. The new growth engines with large addressable markets: digital in Jio, e-commerce in RR, COTC in energy Interesting options with likely foray into financial services and partnerships.

India’s most valued company RIL reported a more than 22% increase in fourth-quarter profit on 16,203 crore thanks to huge oil refining margins, steady growth in telecom, digital services and retail. Operating revenue of the Mukesh Ambani-led conglomerate increased by 37% to 2.11 lakh crore during the quarter ended March 31, 2022. It became the first Indian company to exceed $100 billion in revenue in a year.

Last week, another global brokerage firm, JP Morgan, upgraded RIL’s rating from neutral to overweight, driven by the global view of a strong refining environment as it believes Reliance Industries is one of the few major companies in India with a positive earnings revision cycle ahead, given the strong refining and gas environment.

Mukesh Ambani is chairman and director of Reliance Industries, which has interests in the petrochemical, oil and gas, telecom and retail sectors. Nearly 60% of Reliance’s revenues come from oil refining and petrochemicals, although the conglomerate has reduced its reliance on oil refining by diversifying into retail, telecommunications and technology.

The views and recommendations made above are those of individual analysts or brokerage firms, not Mint.

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