Reliance Industries Stock: Surge After Citi Upgrade

by | Nov 27, 2024 | 0 comments

Reliance Industries Stock is one of India’s largest conglomerates and has played a very important role in sectors such as petrochemicals, refining, retail, and telecom. Reliance Industries was the stock that made waves in the market over the years and showed growth, and resilience. However, it was not easy to get such support as on November 25, 2024, the stock of Reliance Industries jumped by 3% when Citigroup (Citi) analysts upgraded to a ‘buy’ rating. Citi has also set a price target at Rs1,530 for Reliance Industries stock, resulting in the stock having an upside potential of 21% from the Friday close. This enhancement with an upgrade does well to please the investors and the ones who are looking for long-term gains. In this blog, we will analyze what has led to the upgrade by Citi, the implication on Reliance Industries stock, and what is in store for investors going forward.

Citi Upgrade and Change in Price Target

The 3% jump in Reliance Industries’ stock came on the heels of a report from Citi’s analysts who upgraded the stock from the ‘neutral’ rating to ‘buy’. The upgrade was based on multiple favourable factors that have positioned the company well for future growth, according to an analysis of Citi. Analysts also increased the price target for the stock to Rs 1,530, with a 21% upside from the current price level at the time of the announcement.

According to the analysts of Citi, the following are some of the reasons that contributed to the positive rating:

Increase in Refining Margins:

The key reason that is pointing towards a brighter scenario for Reliance Industries is the increase in refining margins. Analysts at Citi cited this reason and further mentioned that the fading export competitiveness of China would be a significant driver for this positive move. Refining margins are essential for companies that are engaged in refining operations. Higher refining margins reflect a higher profitability level. Since the refining business is a significant segment of its overall business, it should also strengthen and improve its earnings in the coming quarters.

Strength in Telecom (Jio):

The other critical reason for the upgrade by Citi is the strength of Reliance’s telecom business, Jio. Jio has emerged as a leader in the Indian telecom market, and it continues to do well and stand out under pressure competition. Citi analysts expect Jio to benefit from upcoming tariff hikes and increased data pricing. Furthermore, the ongoing monetization of Jio’s 5G rollout could bring in substantial revenue and position the company as a future-ready telecom giant. This is crucial as 5G technology is expected to play a major role in India’s digital transformation and can open up numerous opportunities for Jio to grow.

Diversification in business models:

Reliance Industries is no longer just a petrochemical and refining company. It has been diversified through a whole string of sectors such as retail, telecom, digital services, and energy in years past. This has strengthened the market position and offered multiple revenue streams. According to the analysts at Citi, the broad-based growth across these verticals will support long-term growth even if some segments experience temporary softness.

Growth Prospects in the Long Run:

Despite facing some business units, more particularly in its retail businesses, Citi looks forward to the optimistic future growth of Reliance Industries. The aggressive decision by this firm to take technological advancement and digital services provides itself with a strong position for prospective growth in the country and globally, considering its well-positioned leadership in energy, telecom, and retail.

 

Reliance Industries Recent Performance

While the 3% jump in stock price is partly an effect of the Citi upgrade, it also has to be seen against the company’s recent performance, which forms a major part of the overall positive picture.

Reliance Industries posted sequential growth of 9.4% in its net profit for the quarter of July-September 2024. The company has claimed a net profit of Rs 16,563 crore during the quarter. The company’s telecom and retail businesses reported some serious growth during the period, therefore. Overall growth came about due to strong performance in telecom as well as demand in the retail business.

Revenue from Operations:

The revenue stood at Rs 2.35 lakh crore for the quarter, which was up marginally less than the Rs 2.36 lakh crore clocked in the earlier quarter. These numbers are decent given the larger economic context.

Telecom and Retail Sectors:

Jio continues to grow well, with the benefits of tariff hikes and increased data usage. The retail business, led by Reliance Retail, has also performed well, though there are some areas where retail challenges persist. A diversified portfolio of Reliance Industries is well-placed to ride out short-term cyclical challenges.

 

Challenges in Retail and Short-Term Outlook

Despite the positive results, Citi did point out that there could be continued softness in the retail segment for another couple of quarters. This could be because of the changes in market conditions, supply chain challenges, inflationary pressures, and changes in consumer behaviour. Those short-term issues should not overshadow the long-term growth prospects of the retail segment, which Reliance Industries continues to regard as crucial.

Importance of Diversification

Reliance Industries has grown to be a diversified conglomerate over time with businesses cut across several critical sectors of the economy. The diversified business model of the company has proved to be the reason behind its ability to weather challenges in specific segments. Let us glance at the major sectors where Reliance operates:

1. Refining and Petrochemicals:

Reliance is one of the largest refining businesses in the world. The company’s refining capacity takes it to a substantially aggressive position in the global market. The anticipated improvement in refining margins, as discussed in the earlier chapter, is the most important profit driver for the company.

2. Telecom (Jio):

Jio, a telecom unit of Reliance, has overhauled the entire face of telecom in India with pricing that is affordable and also with the coverage of 4G networks within an enormous customer base. With the advent of the 5G rollout, Jio is well-prepared to spearhead digital transformation in India.

3. Retail:

Reliance Retail is India’s largest retailer, with a significant presence in both physical and digital retail. Retail is a key segment of the strategy for Reliance to become a consumer-facing powerhouse, despite short-term challenges in this space, it remains one of the major growth drivers.

4. Energy and Renewables:

Reliance has invested significantly in renewable energy, especially solar power, hydrogen, and other green energy sources. This would qualify it as a future-ready company in an energy-constrained world, because of the global shift towards sustainable development.

5. Digital and Technology:

The company has taken aggressive strides in digital services and technology. Its focus on building a digital ecosystem, including data centres, cloud services, and artificial intelligence, is a critical leg of its long-term growth strategy.

 

Why investors should buy Reliance Industries now

Considering the upgrade by Citi and the benign tailwinds that the brokerage has identified, investors may like to take additional exposure to Reliance Industries. Here are some reasons for it:

Positive Market Fundamentals:

The positive fundamentals include strong financials, dominant market share in several sectors, and a diversified revenue stream from Reliance Industries. Strong positioning in the Indian market as well as worldwide makes it a leader in the refining and telecom businesses and a major player in retail.

Growth in Digital and Telecom:

Jio growth, along with the ongoing roll-out of 5G, is a huge area of upside. The company is well-positioned to be India’s leader in its digital ecosystem, and growth in data and services will be huge for this company going into the next few years.

Reliance’s investments in green energy and renewables are ripe and future-proof, given the worldwide push for sustainable clean sources of energy. This is well-poised to make Reliance eligible to look forward to long-term growth in the evolving energy market.

Valuation and Market Sentiment:

With Citi’s upgrade and a 21% upside potential from the current levels, Reliance Industries offers attractive risk-reward dynamics for investors. While short-term challenges in the retail sector may persist, the long-term outlook remains strong due to the company’s diversified portfolio.

 

Conclusion: Is Reliance Industries Stock a Good Buy Now?

The stock of Reliance Industries has risen by 3% following the upgrade by Citi. The market thus is broad-based and positive about Reliance. The company is well placed in several of its key sectors like refining, telecom, retail, and renewables. There may be short-term problems in the retail business, but the overall growth story for Reliance Industries remains intact.

For long-term investors, the diversification in the business model, consolidated finances, and leadership in some sectors are still reasons enough for investing in Reliance Industries. Further, the  21% upside potential given by Citi adds to the attractiveness of the stock.

The investors who choose to invest in the Reliance Industries group in their portfolio should closely watch the trend in its core business under segments such as Jio and retail formats. However, with the right strategies and careful consideration, Reliance Industries is likely to continue delivering mammoth returns to investors in the long term.

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