Reliance Industries Ltd.
Reliance Industries Ltd.

New Delhi: Goldman Sachs Equity Research has increased the 12-month target price of the shares of Reliance Industries to Rs 1,850 per share. The equity research firm also raised the earnings estimate for financial year 2021-22.

On Wednesday, shares of RIL on the BSE closed at Rs 1,552.55, lower by Rs 26.30 or 1.67%. The positive comes on the back of expectation of stronger growth in the telecom segment, with higher revenue and strong subscriber base among others.

"We raise our earnings estimates for FY21/22E and 12-month target price to Rs 1,850 (from Rs 1,635) mainly on our expectation for stronger growth in the telecom business, driven by a higher ARPU from potential tariff hikes coupled with continued strong subscriber addition momentum (44% market share by FY22E)," Goldman Sachs said in a research note.

"We maintain our positive view on the stock given: sharp sequential acceleration in refining margins due to International Maritime Organisation's (IMO) 2020 regulations and accelerating global GDP driving tight diesel markets," it added.

"Continued high growth in consumer-focused businesses, which we estimate to grow at 50% FY19-22E CAGR; and significant improvement in FCF (free cash flow) and asset monetisation leading to deleveraging. Our FY20/21E EBITDA is 7%/20% above Bloomberg consensus. Reiterate Buy (on CL)," the research note said.

Further, it expects Reliance Jio to benefit the most from the recent tariff hike announced by all the three private telecom operators. It said that among the three operators, Jio is most likely to witness the highest increase in average revenue per user (ARPU).

"We believe Jio is likely to see the highest increase in ARPU/revenue from the recent tariff hikes, due to a large proportion of smartphone users in its base. Coupled with Jio's strong subscriber addition momentum, we believe the company's market share can continue to expand, and reach 44% by FY22E, from 35% in 2Q20," the note said.

It also said that complex refiners will be the biggest beneficiaries of IMO 2020 regulations and RIL, with the highest refining complexity, is well positioned to benefit from the same. Shipping companies have to adhere to the IMO's low sulphur fuel regulations starting January 1. The regulations 2020 mandate reduction in sulphur content of bunker fuel to less than 0.5% from 3.5% to reduce sulphur dioxide emissions globally.

RIL's refinery has the complexity of 20, which means it can break the heaviest of crude into sweet crude saving on price due to light heavy differentials and increased demand from the shipping companies.

"We expect GRMs (gross refining mining) for RIL to rise sharply from last quarter's level of $9.4/bbl to our FY21 forecast of $14.5/bbl. This improvement in GRMs is driven by IMO 2020 and accelerating global GDP driving tight diesel markets; reducing headwinds from heavy crude sourcing as lower demand of heavy and sour crude would start to offset declining supply; and benefits accruing from the petcoke gasification project," it said.

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