Re­liance In­dus­tries to dou­ble mar­ket cap to $100b in 3-4 years

The Pak Banker - - COMPANIES/BOSS -

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.

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