Reliance Industries put on a better performance than the Sensex during the course of the past year, due to high Gross
Refining Margins (GRMs).
Growth of Reliance Industries
The Mukesh Ambani-led company is moving on a path to increase its market cap by more than twice. According to a report
from Morgan Stanley, the company’s current market cap is USD 47 billion, which will be USD 100 billion in 3to 4 years.
The last 12 months have seen the shares of Reliance Industries increase by more than 14%. In the same period, Standard and
Poor’s (S&P) Bombay Stock Exchange (BSE) Sensex saw a 7% drop.
The report said, “
This is just the start. Reliance Industries is nearing the completion of its largest-ever CapEx
program of USD 46 billion over Financial Year (FY) 2014-2017, paving the way for a multi-year cycle of strong Free Cash
Flow (FCF) generation.”
Estimations of Morgan Stanley
Morgan Stanley has predicted that stock prices of Reliance Industries will increase by 37% in the next 12 months. The
company may touch the target of INR 1,329.
Over the last 15 years, it is noticed that Reliance Industries performs better when it begins generating FCF after its
CapEx mode. These results are predicted, seeing a similar situation.
The investment bank mentioned that Reliance Industries will deliver 50% growth in its Profit After Tax (PAT) in the next
two years. This will expand the Return On Capital Employed (ROCE)by 240bps.
Telecom Business
The report expects that the company’s investments for its telecom venture, Reliance Jio will cross USD 18.6 billion in the
next two years. It says that the venture will be profitable as the spectrum portfolio and fiber reach of the company is
more impressive as compared to other telecom operators.
Reliance Jio has entered into spectrum sharing deals with Reliance Communications. Its infrastructure cost is also not
high. These factors will let the company offer better margins of more than 40% by FY 2019 - 2020. Moreover, Long-Term
Evolution (LTE) technology will be highly popular among customers as the company is enhancing the availability and
affordability of 4G-enabled devices.
Oil Business
In the petroleum sector, if the price of oil reaches USD 60 per barrel, Reliance Industries’ downstream projects will
become more profitable. The company will offer Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of
USD 3.6billion.
Retail Business
The retail arm of Reliance Industries, Reliance Retail, launched a limited edition of
Reliance LYF branded smartphones on the occasion of Valentine's Day. It has the
highest revenue among all the retailers in the country. It has a network of 3,043 outlets. The retail business of Reliance
Industries will grow further and profits will be enhanced.
The revenue for Reliance Industries in FY 2015 - 2016 is USD 3.2 billion or INR 21,200 crore. The report expects that the
revenue will be USD 8.1 billion or INR 53,200 crore in the next 4 years.
In addition, the report stated that the stock valuations of the company form a good entry point.
Summary
The stocks of
Reliance Industries have performed better than
the Sensex in the last 12 months and is set to show further growth.