UBS Resumes Coverage on Reliance Industries with 'Buy' Rating, Sets Target Price at Rs 1,750

UBS resumes coverage on Reliance Industries with a 'Buy' rating and sets a 12-month price target of Rs 1,750. The brokerage firm expects Reliance Jio to reach maturity, with mid-teen revenue growth and rising cash flows, and the retail segment to witness improved growth in the teens. The new energy vertical is expected to start contributing meaningfully to EBITDA from FY27 onwards. UBS uses a sum-of-the-parts valuation model, including EV/EBITDA multiples for O2C, oil and gas, and new energy, and a DCF-based valuation for Jio.

UBS Group AG has resumed coverage on Reliance Industries Ltd. (RIL) with a 'Buy' rating and set a 12-month price target of Rs 1,750. The brokerage firm expects Reliance Jio to achieve mid-teen revenue growth and rising cash flows, while the retail segment is anticipated to witness improved growth in the teens. The new energy vertical is expected to start contributing meaningfully to EBITDA from FY27 onwards. UBS employs a sum-of-the-parts valuation model, including EV/EBITDA multiples for O2C, oil and gas, and new energy, and a DCF-based valuation for Jio.

UBS's upgrade reflects a positive outlook on RIL's prospects, acknowledging its strong fundamentals and growth potential. The brokerage highlights that RIL's strategic initiatives in 5G expansion, broadband penetration, and enterprise growth have been successful, with Jio turning free cash flow positive. Jefferies noted that Jio's revenues from external clients increased significantly, with a five-fold year-over-year jump in Jio Platforms and Reliance Jio Infocomm [2].

The brokerage also points out that RIL's elevated capitalized costs and high share of assets under development have impacted near-term profitability. However, UBS believes that Jio's strong 5G adoption, growth in fiber connectivity, and non-connectivity revenues from its platforms and enterprise solutions will provide long-term growth visibility [2].

For the retail segment, UBS expects improved growth in the teens, driven by digital and retail businesses. The new energy vertical is anticipated to start contributing meaningfully to EBITDA from FY27 onwards, supported by RIL's strategic investments in this area.

UBS's positive outlook is supported by RIL's strong fundamentals and growth prospects. The company's ability to operate at lower leverage and strengthen non-energy revenue streams could lead to an upgrade in its rating, according to S&P Global Ratings [3].

In conclusion, UBS's 'Buy' rating and price target reflect a balanced view of RIL's prospects, acknowledging both its growth potential and the risks associated with the sector. For investors with a multi-year horizon, the current volatility presents an opportunity to enter ahead of key catalysts, including the upcoming earnings reports and continued growth in 5G adoption and broadband penetration.

References:
[1] https://www.ainvest.com/news/ubs-raises-broadcom-pt-345-maintains-buy-rating-2508/
[2] https://economictimes.indiatimes.com/markets/stocks/news/reliance-jio-annual-report-jefferies-finds-8-key-takeaways/articleshow/123402711.cms
[3] https://www.business-standard.com/companies/news/potential-to-upgrade-rating-of-reliance-industries-says-s-p-global-ratings-125081901136_1.html