JP Morgan upgrades RIL to 'overweight'

Synopsis

RIL is among the few large companies in India with a positive earnings revision cycle ahead, given the strong refining and gas environment, said the brokerage firm in its latest report.JP Morgan expects RIL to outperform Nifty50 in the ongoing year, given the strong chances of upgrade in earnings estimates. It has increased its earnings estimates by 19 per cent for FY 2022-23 and 17 per cent for FY 2023-24.

Agencies

New Delhi: Global brokerage JP Morgan has upgraded its rating on India’s biggest company in terms of market capitalization –

(

) – from ‘neutral’ to ‘overweight.’

The broking firm has set a target price of Rs 3,170 on RIL, signalling a potential upside of 22 per cent in the counter against its previous close of Rs 2,596.30 on Wednesday.

RIL is among the few large companies in India with a positive earnings revision cycle ahead, given the strong refining and gas environment, said the brokerage firm in its latest report.

Better earnings outlook of the refining and upstream gas business and strong holding of valuations for non-energy or consumer business are key factors attributed for the upgrade, the brokerage added.

On the contrary, two key risks for the company are fall in refining margins to January 2022 levels and a sharp decline in consumer business valuations, it noted.

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JP Morgan expects RIL to outperform Nifty50 in the ongoing year, given the strong chances of upgrade in earnings estimates. It has increased its earnings estimates by 19 per cent for FY 2022-23 and 17 per cent for FY 2023-24.

“Earnings estimates imply a sharp pullback in diesel and gasoline from current record level but RIL remains among the best positioned refiners globally, given its ability to buy and process arbitrage barrels, diesel heavy slate and export focus.”

RIL’s upstream business should benefit from rising domestic gas prices and higher volumes, it added. “Overall we see the O2C business reporting improving profits for the next few quarters.”

RIL underperformed Nifty50 in 2021 as the stock rose 19 per cent compared to a 24 per cent rally in the index.

“While higher Oil and GRMs are positive, we had earlier expected the global tech sell-off to impact RIL’s consumer valuations negatively and cancel out the near term earnings upside. However, RIL’s consumer valuations have held up well,” it said.

At the upcoming annual general meeting (AGM) of Indias’ largest conglomerate, JP Morgan believes that demerger or the IPO buzz of consumer business – telecom and retail – are likely to grab center stage.

“We do not expect any concrete timelines from this year’s AGM on the consumer businesses IPOs (Jio, Retail), even though media reports have talked about IPOs of these businesses,” it said.

In its report, the foreign brokerage has valued O2C business at $83 billion, retail business at $121 billion and Jio Mart at $40 billion.

It has also assigned a 2x investment value for the proposed green energy/renewable investment. “We do not build in any holding company discount at this point,” the firm said in its report.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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