Reliance stock gains as Akash takes driver's seat at Jio, brokerages upbeat

Succession plan triggered upgrades from brokerages

Investors gave Reliance Industries (RIL) the thumbs up on Wednesday - a day after the company announced that chairman Mukesh Ambani was stepping down from the board of Reliance Jio Infocomm to make way for his son Akash.

The Ambani scion, who is 30, will take over as chairman of the board, the announcement said on Tuesday, coming at a time when telecommunication companies are preparing for 5G auctions next month.

RIL owns 67 per cent stake in Jio Platforms, which fully owns Reliance Jio Infocomm.

Shares of RIL closed trade nearly 2 per cent up on Wednesday over the previous day’s close on the BSE at Rs 2,579.05 apiece, even as the broader market remained weak.

The BSE Sensex was down 150.48 points to close trade at 53,026.97, down 0.28 per cent over the previous day’s close.

In the last five days, the RIL stock is up 2.9 per cent, while shares of the company have been flat in the past three months, reveals data compiled by BS Research Bureau.

The RIL succession planning, according to experts, is in sharp contrast to the chaos that prevailed when Reliance Group patriarch Dhirubhai Ambani died without a Will 20 years ago. Back then, brothers Mukesh and Anil were at the centre of a bitter family feud, which eased following a separation of the business in 2005 brokered by their mother Kokilaben.

Since then, the succession planning at Indian family businesses has streamlined, observed experts, as is evident with Akash’s elevation. His twin sister Isha is expected to be elevated any time soon to the position of chairperson of Reliance Retail. She is currently director on the company’s board.

The succession plan has also triggered upgrades from brokerages.

Bernstein on Wednesday raised its target price for RIL to Rs 3,360, from Rs 2,830, suggesting a 33 per cent potential upside over Tuesday’s close.

Bernstein has followed peers Morgan Stanley, JPMorgan, and Jefferies - all of whom have turned bullish on the stock in the past few months.

Jefferies last week had maintained a price target of Rs 3,400 – an upside of 34 per cent from the current levels.

Bernstein said it saw RIL’s refining margins rise to a record level of $25.5 per barrel in 2022-23 (FY23). The brokerage said tariff hikes would drive strong Jio results and that e-commerce acceleration across categories would lift retail segment numbers in the current financial year.

"The build-out of JioMart (e-commerce) and omnichannel presence, scaling up of the Jio platform, and investments in new energy to accelerate energy transition will all contribute to growth. With Reliance in the midst of a secular growth phase, we expect the combined earnings before interest, tax, depreciation, and amortisation (Ebitda) for the four businesses to increase 20 per cent compound annual growth rate in the next four years,” the brokerage said in its note on Wednesday.

Bernstein said it expected FY23 Ebitda of Rs 1.76 trillion for RIL - an increase of 48 per cent from 2021-22 (FY22) Ebitda of Rs 1.19 trillion, ahead of the current consensus estimate of Rs 1.47 trillion by analysts.

Oil-to-chemicals (O2C) earnings were expected to increase more than any other segment in FY23, driven by record refining margins, said Bernstein, due to exceptional market conditions, triggered by a reduction in supply of refined products from Russia and China.

“Based on our estimates, we believe the company’s Ebitda can more than double from FY22 to 2025-26 (FY26) to Rs 2.47 trillion, mainly through growth in new energy, digital, and retail, while O2C will see earnings normalise in 2023-24 onwards as refining margins regress to the longer-term average,” it said.

According to Bernstein, O2C business’ contribution to total Ebitda would be 48 per cent in FY23.

“Beyond FY23, digital and retail businesses will grow at a faster rate, which will limit the Ebitda contribution from O2C to around 20-30 per cent of total Ebitda. This still remains significant. Digital was the largest contributor of Ebitda in 2020-21 at 38 per cent, which will continue to represent 36 per cent of total Ebitda over the next five years. Retail (offline plus online) will grow from 12 per cent of total Ebitda in FY22 to 23 per cent by FY26,” the brokerage added.