RIL set to end year with best gains since 2009 with more upside likely

MUMBAI: Shares of India’s most valuable company, Reliance Industries, which led the gains for the benchmark Sensex in 2017, may post their biggest advance this year since 2009, underpinned by the telecom business at the conglomerate.

The stock has gained 70.78 per cent so far this year, while in 2009 it had jumped 77 per cent. The turnaround in sentiment for the stock became manifest after Reliance Jio started charging subscribers for its services, having forced a consolidation in the telecommunications industry.

The stock had underperformed the broader Indian markets between 2008 and 2014, with softer margins weighing on earnings. Capital expenditure also rose as the company started spending on its new energy projects, while also making big telecom bets with Jio.


Jal Irani of Edelweiss Securities remains positive on the stock. “RIL should give healthy returns, going forward. To expect the same sort of 70-80 per cent year-on-year growth in stock prices is unprecedented and unrealistic, but the fundamentals continue to be strong,” said Irani in an interview to ET Now. He said the stock valuations remain reasonable and are not particularly demanding at 1.5 times price to book value.

Echoing a similar view, Sanjiv Bhasin, executive VP-markets and corporate affairs at IIFL, said he expects the stock to rise to Rs 1,250 by the end of 2018.

“A large part of the rally is due to Jio and the market share it has gained. Higher crude prices are also positive for Reliance’s gross refining margins. A large part of the Jio rally has played out but as long as the energy business remains in a sweet spot, the stock should move higher,” said Bhasin.

However, Jefferies has a bearish view on the stock. The brokerage has an underperform rating, with a target price of Rs 790. “RIL’s EBITDA may double to $20 billion by FY22/23, but at $123 billion in EV, much of that appears baked in. Indeed, even with rising EPS, return ratios stay modest while FCF (free cash flow) may lag expectations as working capital normalises,” said Jefferies.