RIL surges over 4% as Goldman raises target

Mumbai: Shares of Reliance Industries, which have the second-highest weighting in the Nifty 50, surged more than 4% intra-day to touch a near three-week high after Goldman Sachs raised its target price citing higher returns on cash invested, and a change in the mix of capital expenditure.

Reliance Industries is currently the largest company in India by market capitalisation, which is a little over ₹20 lakh crore.

The brokerage now has a target price of ₹3,400 for the shares of Reliance – up 16% from earlier- and this implies an upside of 14% from Wednesday’s closing price of ₹2,983.65.

“RIL’s consolidated returns are at an inflection point in FY24 and we estimate CROCI (cash return on cash invested) will expand by ~270 bps to 12% in FY27 (highest since 2011),” analysts at Goldman Sachs said in a note to clients.

The brokerage also expects the company’s operating profit to expand 17% on a compounded annual basis until FY27, majorly driven by the energy business.

The last decade saw Reliance investing more than $125 billion in its hydrocarbons and telecom business, both of which have a gestation period of more than five years. The capital expenditure cycle for the 5G technology telecom is also set to be completed this year.

“We believe the businesses RIL is investing more in the next three years (retail and upstream new energy) are relatively less capex heavy, higher in returns and have a shorter gestation period,” the analysts said.

Shares of Reliance Industries have already gained more than 15% so far in 2024, hitting its lifetime high of ₹3,024.90 earlier this year.

The end to the massive capex cycle will also help Reliance Industries turn free cash flow positive in FY25, while the operating profit is seen expanding 20% on year, driven by a telecom tariff hike, higher retail same-store sales growth and a recovery in margins in the chemicals business.

Goldman Sachs has reiterated its ‘buy’ rating for shares of Reliance. Of the 35 ratings available for the company on Bloomberg, 29 had a ‘buy’ or equivalent rating, 4 analysts suggested a ‘hold’ rating for the stock, while 2 recommended a ‘sell’. Shares of RIL could rise to ₹3,200-3,300 in the near term, said Atul Chaturvedi, analyst at Antique Stock Broking. He recommends that investors looking to buy the stock should maintain a stop loss of ₹2,850.