Reliance Industries to double market cap to $100b in 3-4 years
Reliance Industries Ltd (RIL) may double its market capitalization to $100 billion in the next 3-4 years from the current $47.97 billion driven by higher margins from its core business of crude oil refining, Morgan Stanley said in a 1 March report.
"RIL is set to generate strong free cash flows after almost a decade as its capex cycle is nearing an end; earnings delivery should start from downstream expansion," said Morgan Stanley, adding that Reliance shares have gained in periods of positive free cash flow generation.
In the third quarter of the current fiscal year, RIL reported a record quarterly profit as margins in its core refining business expanded to the highest in seven years because of a slump in crude oil prices.
Net profit rose 39% to Rs.7,290 crore for the three months ended 31 December from Rs.5,256 crore a year earlier. Crude oil refining accounts for more than 65% of profit and 70% of revenue for RIL, the operator of the world's biggest oil-refinery complex located at Jamnagar in Gujarat.
RIL shares which had underperformed the Sensex for seven consecutive years finally broke its poor run on the markets in 2015. Last year, RIL shares gained 13% compared to a 5% drop in the Sensex.
Speaking about RIL's advantages, Morgan Stanley said that RIL's downstream projects increase its refinery edge and would make the company a key gainer if oil prices move up. "We expect these projects to add $2.5 billion in Ebitda (earnings before interest, tax, depreciation and amortisation) by FY18, leading to lumpy 65% growth in stand-alone earnings and 50% on a consolidated basis assuming telecom losses," the report said.
Referring to its telecom business, the report said RIL's FY16 (estimated) capital employed in telecom ($18.6 billion) is currently a drag and dilutes the return on capital employed.
Last month, Ambani said the energy-to-telecom conglomerate will launch its fourth-generation (4G) mobile phone services in the second half of 2016, marking a further delay in its plans. Jio, the brand name of Reliance Jio Infocomm, officially launched its services in December 2015 on Reliance Founder's Day, when it offered its around 80,000 employees up to four connections each, free of cost, to test its services.