Reliance shares keep a “buy” rating from Jefferies, with a potential gain of 16% and improved profitability

According to Jefferies, factors that will affect refining margins in CY22 include multi-year low stocks, dropping Russian exports, subdued Chinese exports, decreased diesel output in Europe, and delays in the commissioning of ME refineries.

On June 22, a sluggish market caused Reliance Industries’ share price to trade in the negative. Despite only seeing a 13 percent return over the previous year, the stock has remained muted.

The stock was down Rs. 45.05, or 1.74 percent, to Rs. 2,539.05 at 9:44am. It reached a high of Rs. 2,558,30 during the day and a low of Rs. 2,538,80 during the day.

With a target price of Rs 2,950 per share, up 16% from the current market price, global research and brokerage firm Jefferies has maintained its buy rating on the stock. According to the research company, the stock’s drop presents an opportunity, and there are positive factors affecting the refining margin in CY22.

According to Jefferies, factors that will benefit refining margins in CY22 include multi-year low stocks, dropping Russian exports, subdued Chinese exports, decreased diesel output in Europe, and delays in the commissioning of ME refineries.

“Reliance Industries is a key beneficiary of energy inflation, with every $1 per barrel improvement in annualised refining margins, adding an estimated $400-450 million to RIL’s consolidated EBITDA. Our initial estimates suggest RIL’s oil-to-chemical business EBITDA could rise 60 percent on quarter in Q1 this year and account for 35 percent of our FY23 estimate. Continued strength in refining should result in consensus FY23 earnings upgrades,” it said.

From its most recent peak, the stock has declined by 10%. “We reiterate buy with a target price of Rs 2,950,” it added.

JP Morgan had previously changed its rating on Reliance from neutral to overweight and increased the target price from Rs 2,575 to Rs 3,170 per share, representing a gain of more than 24% over the following 12 months. The company claimed that the reason for its rating upgrade was an improvement in the profits outlook for the refining and upstream gas industries as well as the holding of valuations in the consumer technology industries.

Given that there is a significant likelihood that the Street’s profit forecasts for the company will be raised, JP Morgan thinks the firm will continue to beat the Nifty50 in 2022. The brokerage increased its forecast for earnings per share for 2022–2023 by 19% and for 2023–2024 by 17%.

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