CLSA raises RIL target price to Rs 1300; says could double on retail and telecom success

NEW DELHI: CLSA in its latest report raised its 12-month target price on Reliance Industries Ltd to Rs 1300 from Rs 1150 earlier, which translates into an upside of nearly 30 per cent from Tuesday's closing price of Rs 1000.45.

The Asia focussed broker is of the view that the stock is near historical-average valuations and within 15 per cent of their March 2017 bear case, while the bull case suggest over 100 per cent upside on success of 4G telecom and retail business over next three years.

CLSA sees option value of US$17bn if Reliance's endeavours in organised retail, telecom and fuel retail are successful. The start of downstream expansions in the next 18 months will lift Ebitda by 75 per cent over the next three years and rerate its annual operating cashflow to US$7bn.

The conglomerate's strategic investments represent 25 per cent of its FY15 standalone balance sheet but contribute little to profits and are a drag on its return ratio.

"We assign nil value to its US$13bn in equity investments across its non-core businesses. However, we estimate a US$17bn boost to equity value should Reliance's 4G telecom offering garner quick subscriber additions(US$8bn) its online foray boost its organised retail division (US$6bn) and its auto-fuel marketing gain traction (US$3bn)," said the CLSA report.

The brokerage firm estimates cashflows of up to US$25bn in projects will start coming in over the next 18 months, Ebitda will rise by 75 per cent in three years to US$11bn.

FY18 operating cashflow will rise over US$7bn, which should easily cover any start-up cash losses in telecom. Leverage will also fall after net debt/Ebitda peaks at 2.7x in FY16, added the report.