Home / News / India /  RIL shares: JPMorgan upgrades rating to ‘overweight’, raises target price
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In JPMorgan's view, Reliance Industries (RIL) is among the few large companies in India with a positive earnings revision cycle ahead, given the strong refining and gas environment.

The global brokerage's upgrade of RIL share price's rating to overweight from Neutral is driven by global view of strong refining environment though we build in a decline in product cracks from current levels, and RIL's non-Energy business valuations continuing to hold up. It has a June 2023 price target of 3,170 (from 2,575 earlier).

"We expect RIL’s outperformance to continue (RIL has outperformed the NIFTY by 21% YTD), given the upside risk to consensus earnings estimates. We increase our FY23-24 EPS estimates by 19%/17%," the note stated.

The brokerage's earnings estimates imply a sharp pullback in diesel and gasoline cracks from current record level, but RIL remains among the best positioned refiners globally, given ability to buy and process arbitrage barrels, diesel heavy slate, and export focus. The upstream business should benefit from rising domestic gas prices and higher volumes, as per JPMorgan.

Why an upgrade now? 

“While higher Oil and GRMs are a positive, we had earlier expected the global Tech sell-off to impact RIL’s consumer valuations negatively (Jio, Retail) and cancel out the nearterm earnings upside. RIL's consumer valuations have held up well and with likely higher ARPU’s and further ramp-up of Retail footprint, combined with Renewables business optionality, the Non Energy Business valuations should hold up going forward even as Consolidated reported earnings should improve materially from here on Refining and E&P," the brokerage added.

Though, the key risks, as per JPMorgan include fall in Refining margins to January 2022 levels, and sharp decline in consumer business valuations.

"While RIL's product hedging means there is unlikely to be a complete pass-through of spot cracks, overall we see the O2C business reporting improving profits for the next few quarters. While PE spreads remain weak, strong PX should result in steady Petrochem profits," it said.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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