The brokerage said it was upbeat about RIL in view of the higher average revenue per user (ARPU) from potential tariff increases, coupled with continued strong subscriber addition momentum. It maintained a ‘buy’ rating on the shares.
“We maintain our positive view on the stock, given the sharp sequential acceleration in refining margins due to IMO 2020 and accelerating global GDP driving tight diesel markets; continued high growth in consumer-focused businesses, which we estimate to grow at 50% FY19-22 CAGR; and significant improvement in free cash flow and asset monetisation leading to deleveraging,” Goldman Sachs said.
The brokerage said that its estimated operating income for RIL will be higher by 7% in FY20 and 20% in FY21than the Bloomberg consensus estimates.
“Of the 13% target price increase, 9% is driven by higher value for the telecom business and the remaining 4% is driven by the roll forward of debt. We have rolled forward from FY20 to FY21 for the energy business valuation; however, there is no material change in EV of the energy business,” the report said.
Goldman Sachs said that complex refiners will be the biggest beneficiary of IMO 2020 regulations and RIL with the highest refining complexity is well positioned to benefit from it.
The brokerage expects GRMs for Reliance Industries to rise sharply from last quarter’s level of $9.4 a barrel to its FY21 forecast of $14.5\/barrel.
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