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Target: ₹2,805
CMP: ₹2,606.70
A look at Reliance Industries’ (RIL) FY22 annual report provides some pertinent insights on the way the company’s character has transformed over the past three-four years. The fiscal saw record profitability and margins for RIL’s consolidated operations, with growing scale of the consumer businesses complemented by recovery in ‘oil to chemicals’ (OTC) margins as well.
However, substantially higher capex across business segments has meant that return ratios have compressed sharply over the past two years – overall RoE increased just 28 bps and RoCE dipped 57 bps year on year, driven by massive capex of ₹1.4-lakh crore in FY22.
Material capex of ₹82,700 crore in digital services and ₹29.87 crore in retail were key reasons for the weakness in return ratios. Despite the inflow of ₹2.6-lakh crore over the past two years via the unlocking of value in RJio and retail, as well as the rights issue of ₹52,900 crore, net cash declined by ₹13,500 crore in FY21 and increased by only ₹17,800 crore in FY22. Free cash Flow (FCF) yield, therefore, remained muted at 0.5 per cent in FY22.
Reiterate Add, with a revised SoTP-based target price of ₹2,805/share from ₹2,710.
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