“Our scenario analysis suggests that at current price levels, RIL presents a compelling risk/reward proposition, evidenced by Jio’s implied valuation now at a 15–25% discount to Bharti, or alternatively, the implied valuation of Retail is now 15% below that ascribed in the last PE transactions two years ago,” Citi analysts wrote in a recent report.
The brokerage has a target price of Rs 1,690 on the stock, implying an upside potential of over 22% from current levels. On Monday, RIL shares were trading flat at Rs 1,388 on the BSE. The bluechip stock has lost about 9% of its value in the last three months, as sentiment was affected by news flow regarding Russian oil imports, for which Citi sees minimal direct earnings impact for RIL.
The brokerage noted that the underperformance is surprising given positives such as key announcements at the AGM, improved O2C prospects, a boost to the retail outlook, and earnings benefits from a weaker rupee.
“If we assume conservative EVs for O2C ($55bn), new energy ($6bn), and Retail ($100bn – consistent with the last private equity transaction in Oct 2023), the implied FY27E EV/EBITDA multiple for Jio Platforms is ~9.7x,” Citi said, adding that it represents a 15% discount compared to Bharti Airtel‘s estimated EV/EBITDA of ~11.3x at CMP.
“At a slightly higher EV for Retail, Jio’s valuation discount would widen to 25%. This compares with near parity just a year ago. We find this disparity unjustified, especially given our forecast of a similar 18% three-year EBITDA CAGR for both,” the report added.Citi also highlighted that this implied valuation not only disregards the time value of money but also overlooks the growth in Retail’s TTM revenue and EBITDA, which have cumulatively grown by 24% and 34%, respectively, over the past two years.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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