RIL crosses $100 billion in market cap

Mukesh Ambani-led Reliance Industries Ltd (RIL) crossed $100 billion in market capitalisation on Thursday, making it the second company in a little above three months to achieve this milestone. Tata Consultancy Services (TCS), the software services arm of the Tata Group, had crossed the $100 billion mark on April 26.

The recent run-up in RIL’s stock price may be a combination of a strong set of financials that the company is expected to report for the June quarter and a slew of initiatives announced by RIL chairman Ambani during the company’s annual general meeting (AGM) on July 5. RIL, which has business interests ranging from crude refining and petrochemicals to telecom and retail, wants to double its turnover by 2025, while future-proofing itself.

RIL’s share prices ended the day’s trade at Rs 1,082.20 apiece, up 4.42% on the BSE. The bourse’s benchmark S&P BSE Sensex gained 0.78% and closed at 36,548.41 points—a new lifetime high for the index. Since July 5, RIL’s share price has gained close to 6%. In the last one year alone, RIL’s share prices have gained as much as 36%, even as the company starts reaping the dividends of the largest capital expenditure programme in its history through which it has invested close to Rs3.30 lakh crore across businesses such as petrochemicals, refining and telecom.

Over the last five years, RIL’s share prices have gained 138%, outperforming the Sensex, which has risen 87% and TCS that has gained 118% in market value.

At RIL’s AGM on July 5, Ambani announced the company’s foray into fixed-line broadband wireless services under the brand name of Jio GigaFiber (which will include digital services like cable television, video-on-demand and video conferencing facilities, apart from the internet connection); the launch of JioPhone 2—a higher-end version of the Jio’s feature phone; a reduction in the price of the first JioPhone launched; and the decision to convert all hydrocarbon to petrochemicals over the next 10 years. These measures, according to analysts, will help the conglomerate enhance its revenues and profitability. “We raise earnings estimates by 6%, 10%, and 5.7% for FY19, FY20, and FY21, respectively,” said a July 5 research note by BOB Capital Market, a subsidiary of Bank of Baroda.

In FY18, RIL recorded a total consolidated revenue of Rs 4.01 lakh crore and a net profit of Rs36,021 crore. The BOB Capital Markets report stated that Ambani’s stated objective of converting the company’s entire oil output of the refining business to chemicals was an implication of a “substantial threat” that RIL perceives to conventional energy from emerging sources of renewable energy in the long-term.

Interestingly, RIL’s share of operating profit from petrochemicals is expected to fall from 40% in FY18 to around 38% in FY21 and that of refining from 39% to 27%. This is in tandem with an expected increase in contribution from newer businesses like telecom and retail. While earnings before interest, tax, depreciation and amortisation from Jio is expected to rise from 10.5% in FY18 to 28.5% in FY21, the retail business’s contribution is expected to increase to 8% from 4%.