RIL hits $100bn market cap, Goldman Sachs sees further 29% upmove

The rally in RIL stock started after its annual general meeting that took place on July 5.

The stock closed 4.42 percent higher at Rs 1,082.20 on the BSE and taking total five-day gains to over 12 percent. This could be due to an aggressive plan announced in the AGM and ahead of its June quarter earnings.

The date for the announcement of June quarter earnings has not yet been declared by the company.

While having a Buy call on the stock with a target price of Rs 1,340 per share (which implies 29 percent potential upside), global brokerage house Goldman Sachs said it expects Q1 EBITDA to grow 45 percent YoY (up 2 percent QoQ).

It said petchem growth will offset slight decline in the refining margin. "Refining margin may sequentially decline but is set for expansion in coming quarters."

Goldman feels investors will be surprised by stability of new & improved chemical business earnings.

On gross refining margin, the research house said the ramp-up of petcoke gasification project will boost GRM by $2 per barrel in Q4 and IMO 2020 Sulphur Regulations will drive GRMs higher from Q2FY20. "Peak GRM potential will be seen at $18-19 per barrel in CY2020."

In the quarter ended March 2018, Reliance's GRM, a gauge for regional refining margins for the year was at a 9-year high of $11.6/bbl as against $11/bbl in the previous year. GRM is the difference between the cost of crude oil and the average selling price of refined products.

RIL's GRM outperformed Singapore complex margins by $4.4/bbl.

Here are experts comments on Reliance Industries after hitting $100 billion market cap:

SP Tulsian of sptulsian.com said that the telecom is expected to be the biggest contributor to the share price of Reliance Industries over the next 18 months. Hence, he is banking on the growth of Jio and Reliance Retail.

Speaking about positive factors that could impact the stock, he said, "There is an increase in margins of the petchem and refinery segments. The monetisation plan for Reliance Jio and Reliance Retail are likely in the next 30 months."

Sudip Anand of IDBI Capital said the research house has a positive view on the stock and cited overall growth in segments such as petrochemical, refinery, telecom and retail to help it rise. "We have a buy call on the stock with a target price of Rs 1,150 per share."

The petrochemical business in Q4FY18 reported significant volume growth and margin performance on sequential basis and Anand is expecting strong margin growth in petrochemical business. "GRM should be in the range of $10-11 a barrel in medium to long term. On Jio side, the company increased its subscriber base and entered newer segments, which will definitely yield results. So overall we are positive on the stock."

He believes FY20-21 would be one of the best years for RIL, where he sees the company posting significant growth in EBITDA (earnings before interest, tax, depreciation and amortisation).

Deven Choksey, MD at KRChoksey Investment Managers, said that visibility is clearly emerging for Jio as the average revenue per user of Jio will jump from Rs 150 to higher levels.

"Through the fiber-to-home proposition, if Jio customer base reaches 40 crore from the current 20 crore, it would mean an addition of Rs 2 lakh crore to the total revenue and 50 percent of that may be EBITDA which works out to Rs 1 lakh crore. This could happen in two or three years. This is why the market is gung-ho about Jio," Choksey said.

Meanwhile, Mukesh Ambani, Chairman and Managing Director in the AGM launched ultra high speed fixed line broadband services for homes and enterprises under the brand of JioGigaFiber on July 5. "Fiber will redefine 24/7 emergency help for all homes across India and Jio will offer the most competitive broadband connection."

The oil-retail-to-telecom giant has invested Rs 2.5 lakh crore in fiber connectivity.

"We will now extend fiber connectivity to homes, merchants, small and medium enterprises and large enterprises simultaneously across 1,100 cities to offer the most advanced fiber-based broadband connectivity solutions," he had said.

Since its launch in September 2016, Jio has amassed 215 million customers and has sold over 25 million Jio phones. Ambani also announced that JioPhone Monsoon Hungama starting July 21, in which users can exchange a feature phone for a new JioPhone for Rs 501.

Reliance, he said, has reached an inflection point with consumer business contributing as much as its energy and petrochemical.

The company's consumer businesses- Jio and Retail - represented about 13 percent of the consolidated EBI DTA, up from a mere 2 percent last year.

RIL net profits grew by more than 20.6 percent to Rs 36,075 crore in FY18. Reliance's earnings profile underwent a fundamental change this year.

This increase is especially remarkable because it is taking place at a time when the hydrocarbon businesses are growing rapidly, Ambani said.

He further said Reliance is making a strategic transition to become a Technology Platform Company. "New Commerce platform has the potential to redefine retailing in India and become one of the biggest new growth engines for Reliance in the years to come. We are also looking at nation-wide platforms in agriculture, education and healthcare."

Hydrocarbon business, where the largest ever cycle of investment in world-scale complex projects is nearly complete, will yield healthy profits for many years to come, he said.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.