Many triggers ahead for RIL to hit ₹20 lakh crore marketcap

• RIL stock is trading at around ₹2,849, but brokerages’ target prices are between ₹2,900 to ₹3,299.
• There are multiple triggers ahead for RIL to show good earnings per share growth, believe analysts.
• With 5G rollout completing and retail at the end of its capex, consumer businesses are expected to see both topline and bottomline growth.
• The biggest and most awaited event is the possible spinoff of retail and telecom, which is expected after the general elections.
  

Shares of Reliance Industries have been on a roll for several weeks, taking its market cap to ₹19.5 lakh crore mark. After its December quarter earnings beat expectations, the market is waiting to see the company cross the ₹20 lakh crore mark. Analysts who track the conglomerate believe that it has good visibility of earnings growth and, therefore, the rally may well continue.

“I wouldn’t put a time on it, but RIL can hit the ₹20 lakh crore marketcap anytime soon. There are multiple triggers for the stock ahead. They have been investing in the right areas like retail, digital and green energy. They will take shape and provide earnings clarity in the next 2-3 years,” Sanjeev Hota, vice president and head of research at Sharekhan told Business Insider India.

While the stock is trading at around ₹2,849, most brokerages’ target prices are anywhere between ₹2,900 and ₹3,299 per share. It shows that there is an upside in the stock, even after the recent rally.

The stock has been rallying for the last one month, gaining as much as 12%. This comes after underperforming the index for the last three years. Most analysts and brokerages believe that the groundwork for its earnings growth that will drive valuation has already been done. And, that the stock can only gain from here on.

Brokerages’ target price for RIL post Q3 earnings
Source: Brokerage reports

‘Reliance in transition’

The latest report by Bernstein also believes that there are multiple growth triggers for the stock. The brokerage expects RIL’s earnings per share (EPS) to grow at a 20% compounded annual growth rate (CAGR) till the end of FY26.

“Reliance is in transition. Over the next two years, we expect earnings growth will be driven by retail and telecoms, while oil to chemicals (O2C) will see consolidation with profit growth,” said Bernstein.

Its retail business with its favourable mix of groceries, fashion, electronics and more has been gathering steam. It’s expected to sustain 24% revenue growth, ahead of its peers. As capex normalizes in this business, its revenue per square foot will improve due to maturing stores.

It’s also starting to see the benefits of scale. Its growth will be driven by physical store expansion, integration of acquisitions, digital commerce with stores, and merchant partnerships.

“We assume three-fold revenue growth over five years between FY22 and FY26. We expect EBITDA margin to improve to 9% in FY26 as the retail business leverages its large scale and national presence, and also integrates premium brands and partnership,” says BobCaps.

Its telecom business is also at the end of its 5G rollout phase, and its monetization is expected to start soon. This will also happen at the time when the market is expected to see the much-delayed tariff hikes to the tune of 11%. It’s also gaining market share in the consumer as well as enterprise business, due to its 5G offerings and more.

“Jio 5G availability is 3x that of nearest competitor, and overall download speed is 2x that of nearest competitor. Consistent enterprise market share gains for Jio; 33% of large enterprises use 2 or more Jio services and around 50% branches of top 10 banks in India run on the Jio network,” said a report by J M Financial.

The biggest trigger however is the possible spinoffs of its retail and telecom businesses. “The announcements are expected to come in the upcoming annual general meeting,” says Hota.

How big is ₹20 lakh crore?

If RIL hits the ₹20 lakh crore marketcap, its stature will rise amongst the most valued oil companies globally. It’s already the fourth most valuable energy company, after only Saudi Aramco, Exxon Mobil and Chevron.

However, even with the swollen marketcap, it might not be able to overtake Chevron whose value is somewhere around $280 billion which is around ₹2.25 lakh crore.

Within India, it’s not only the most valuable company, it’s way ahead of its closest peer, TCS by a wide margin. In fact, it’s more valuable than the combined value of the last three companies in the top ten list — HUL, ITC and SBI.

Top 10 Indian companies by marketcap
Source: BSE