Not just Jio: Reliance at 8-yr high but it's 'only breaking out'

Shares of Reliance Industries zoomed over 10 percent in trade Wednesday, a day after the company’s chairman Mukesh Ambani disclosed new tariff plans for its telecom arm Reliance Jio.The heavyweight stock saw volumes crossing 40 lakh shares in less than half a day, a move reminiscent of its moves at the height the 2008 bull market when it was an investor favourite.Reliance shares have not performed greatly since but Edelweiss analyst Jal Irani says that a combination of factors, such as the company’s capex cycle drawing down as well as the trigger from Jio, means the stock “is only breaking out” and has way more room for upside.Also read: Reliance alone lifts market despite selling in Infosys, HDFCsIn an interview with CNBC-TV18, Irani said that the street has been overly pessimistic about the prospects for Jio and said that the company had introduced plans “at a very healthy price point”.He added that Jio was only one part of the Reliance share price valuation, and said the company’s USD 40 billion investment in oil & gas projects would start to show up in its earnings.The projects in the commissioning phase are “more than double their productive assets and the market has been virtually valuing these projects at nothing,” said Irani, adding that he expects Reliance’s free cash flow to “rocket” going forward.Also read: As Reliance jumps 10%, here’s what brokerages are sayingEdelweiss had assigned a price target of Rs 1413 to the stock six months back.Irani’s thesis on the stock’s prospects is comprised of many factors: due to a long-drawn investment process, the stock has been trading at cheap valuations (about 10 times price to earnings).“RIL goes through long phases of capex stages of about seven-eight years,” he said, while pointing out that it had managed to maintain 11 percent return on equity even during this stage.“Now that the [oil] capex is coming down and Jio’s infrastructure is in place, it is in a sweet spot,” he said, adding that, “when the Reliance stock moves, it moves [in a big way]”.

Disclosure: Reliance Jio is part of Reliance Industries which also owns Network18 and Moneycontrol.com.