Oil-retail-to-telecom major Reliance Industries (RIL) became the first company among listed entities to hit a market capitalisation (mcap) of Rs 10 lakh crore on November 28. The stock gained 0.74 percent intraday and touched a record high of Rs 1,581.25 on the BSE.
The company has become so big that its current mcap is similar to 19 Nifty companies, or 35 PSUs and banks, or all constituents in the Nifty250 list.
In fact, its mcap in dollar terms stood at $140 billion, higher than Total SA’s $127.96 billion and way higher compared to BP’s $99.57 billion. ($1= Rs 71.46)
While maintaining its overweight call on RIL, global brokerage Morgan Stanley said last week its bull case target price stands at Rs 2,000 (a potential upside of 27 percent from current levels) on hopes of higher refinery margins, potential telecom tariff hike, bottoming P/E cycle, kickstart of gas production, lower capex and ongoing deleveraging.
In fact, it has been one of biggest gainers among the top 10 Nifty companies, rising 10 percent in the last one month, 24 percent in three months and 40 percent in last one year.
It was quoting at Rs 1,579, up Rs 9.25, or 0.59 percent on the BSE at 1012 hours IST.
Here is the journey of RIL’s market cap:
RIL is India’s largest and most profitable private sector company and continues to remain a significant player in the integrated energy value chain globally.
The major reasons behind the stock’s rally are its debt reduction plan, likely hike in tariffs and focus more on consumer businesses.
Last month, RIL had approved the formation of a wholly-owned subsidiary
(WOS) for Digital Platform initiatives and said Reliance Jio Infocomm (RJIL) would become virtually net debt free company by FY20-end, with exception of spectrum-related liabilities.
Its retail business has grown phenomenally, registering a seven-fold increase in revenue and a 14-fold increase in profit in the last six years.
Jio has already become the largest operator in India and still signing up more than 10 million new customers each month. On November 19, it said it would raise the tariffs of its mobile phone call and data charges in the next few weeks.
The two consumer businesses now collectively contribute nearly 32 percent to its consolidated EBITDA, up from two percent five years ago. The management is targeting their share to be 50 percent in the next few years.
On the strength of RIL’s existing and new growth engines, the management is confident of growing this by 15 percent annually over the next five years.
RIL and Saudi Aramco have agreed to a non-binding letter of intent (LOI), wherein the latter may acquire a 20 percent stake in the ‘oil-to-chemicals’ division at an enterprise value of $75 billion. In fact the Saudi Aramco also mentioned about this investment in its IPO.
RIL have received strong interest from strategic and financial investors in their consumer businesses, Jio and Reliance Retail. The company will induct leading global partners in these businesses in the next few quarters, and move towards listing of both these companies within the next five years which will result in significant value unlocking.
Here’s what brokerages are saying
“With the investment cycle having peaked, we expect return on investment to improve going forward. Jio is now prepared to rollout other revenue engines – IOT, home and enterprise broadband service and broadband for small & medium businesses. The company will start generating revenue from these businesses from FY20,” said Anand Rathi, which has recommended a buy on stock.
Sharekhan said RIL has been its high conviction investment idea for the past one-year. The brokerage had anticipated the re-rating in the counter given its expectation of strong earnings growth in retail business and strong profitability in the digital services business.
Going forward, Sharekhan believe that more re-rating catalyst like balance sheet deleveraging (target to become zero net debt company by March-2020) and value unlocking from the retail and digital services businesses.
Hence, it maintained buy rating on Reliance Industries with a revised SoTP-based price target of Rs 1,785.
Disclaimer: Reliance Industries Ltd, which owns Jio, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.Get access to India’s fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
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