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Mukesh Ambani-led Reliance Industries reclaims Rs 10 lakh crore market cap after telecom arm Jio announces tariff hike

BusinessToday.In     December 2, 2019

Reliance Industries on Monday reclaimed the Rs 10-lakh crore market capitalisation mark after its share price hit a fresh all time high on tariff hike announcement by telecom arm Reliance Jio. Reliance Industries share price gained up to 4.07% to hit its all-time high of Rs 1,614 compared to the previous close of Rs 1,550.90 on BSE.

Subsequently, RIL's market capitalisation reclaimed the Rs 10-lakh crore mark in early trade. The market capitalisation rose to Rs 10.14 lakh crore, the highest for an Indian company.

Also read: Why Bharti Airtel, Reliance Industries, Vodafone Idea stocks rose up to 23% today

On November 28, RIL became the first Indian firm to hit the historic milestone achieving Rs 10 lakh crore market capitalisation mark.

Reliance Industries share opened with a gain of 2.84% at Rs 1,595 compared to the previous close of Rs 1,550.90 on BSE.

The stock of Mukesh Ambani-led Reliance Industries has gained 35.88% during last one year and gained 41% since the beginning of this year. During the last one month, the large cap stock has risen 9% on BSE.

On Thursday (November 28), Reliance Industries became the first Indian firm to hit the Rs 10 lakh crore mark capitalisation mark.

On November 19, RIL became the first Indian firm to cross the Rs 9.5 lakh crore market capitalisation mark. The rise in RIL share price came after Vodafone India and Bharti Airtel announced a tariff hike on November 19. The tariff hike was seen benefiting RIL's telecom arm Reliance Jio. A day later, Reliance Jio said it would raise tariff in coming weeks.

Reliance Industries stock has gained traction since Finance Minister Nirmala Sitharaman announced cut in corporate tax rate to 22% from 30% on September 20.   

On September 19, the stock closed at Rs 1,178.70 on BSE. On September 20, the stock ended 6.4% higher at Rs 1,245.40 after corporate tax rate cut was announced.

Since then, the RIL stock has risen 36.93% in nearly 3.5 months taking into account all-time high of Rs 1,614 hit today.

The stock witnessed another major rise after Mukesh Ambani-led Reliance Industries reported second quarter earnings on October 18, 2019.

On October 22, the stock hit a fresh then all-time high of Rs 1,437.65 compared to the previous close of Rs 1,415.30 on BSE.   

Reliance Industries reported a record 18.34% rise in net profit to Rs 11,262 crore for the quarter ended September 30, 2019 due to recovery in refining margins compared to consolidated net profit of Rs 9,516 crore in the same quarter last year. RIL reported gross refining margins at $9.4 per barrel, the best in four quarters.

Also read: After Voda-Idea, Airtel to hike prepaid call and data tariffs up to 42% from 3rd December

Analysts had estimated RIL's GRM to come in at $9.5-$10.5 per barrel in Q2. Gross refining margin is the difference between the total value of petroleum products coming out of an oil refinery (output) and the price of the raw material, (input) which is crude oil.

Q2 earnings came above Bloomberg consensus estimates according to which the conglomerate was likely to report a 17 per cent rise in its consolidated net profit to Rs 11,158 crore.

The conglomerate logged a 4.8 per cent rise in revenue to Rs 163,854 crore in Q2 against Rs 1,56,291 crore in the corresponding quarter, led by strong growth in retail and digital services businesses. Profit before tax (PBT) rose 15.5 per cent to Rs 15,055 crore in Q2 compared with Rs 13,198 crore in corresponding period of previous fiscal.

Numerous upgrades from brokerages have helped the stock march ahead. 

On October 16, before Q2 earnings were announced, Brokerage Bank of America Merrill Lynch pegged market cap of RIL at $200 billion in 24 months. Mukesh Ambani-led Reliance Industries is likely to become first Indian company to reach $200 billion market cap in 24 months backed by its new commerce venture and fixed broadband business, Bank of America Merrill Lynch (BofA-ML) said in a report.

The stock is likely to receive additional boost with several initiatives Reliance Industries has undertaken. New commerce initiative of empowering Kiranas in unorganised retail market by offering MPoS (mobile point-of-sale), entry into SME enterprise space with Microsoft, Jio's fiber broadband business and digital initiatives such as advertising could push the market capitalisation of the conglomerate to $200 billion, the brokerage said.

"We think the market is giving little credit to these initiatives given limited visibility," BofA-ML said. "We expect near-term momentum to be strong."

After the firm announced its Q2 earnings, brokerages have become bullish on the RIL stock and upgraded their target price.

On November 22, global banking major HSBC cited strong performance of retail and telecom business to raise the target price of the stock.

HSBC said,"Operating trends for Jio and organised retail remain strong and are set to drive near-term upside potential. Jio's plans to raise tariffs offer scope for rapid improvement in profitability amid declining capital expenditure which is a positive for RIL." HSBC retained buy call for Reliance Industries share and raised its target price to Rs 1,700 from Rs 1,565.

On November 20, Credit Suisse raised its target price to Rs 1,400 from Rs 1,210 citing likely tariff increase by Reliance Jio which could bring annual cash flow of $1.5 billion. This cash flow will help the firm achieve zero net debt target by FY21, the brokerage said.

It raised its FY20/21/22 earnings per share estimates by 15%, 12% and 20%, respectively.

On November 5, UBS reiterated its 'Buy' call for RIL stock and increased the price target from  Rs 1,500 to  Rs 1,750. UBS said plans to re-organise its investment in Reliance Jio Infocomm Ltd (RJIL) to make Jio a net debt-free company by the end of the current fiscal could unlock significant value for the conglomerate.

In October end, Reliance Industries said it would set up a new unit to bring all its digital initiatives and apps under a single entity, and infuse Rs 1.08 lakh crore equity into this new unit.

The new structure will also create the largest digital services platform company in India. The new entity will continue to work on technologies in areas such as healthcare and education, while also looking at next-gen competencies such as artificial intelligence, Blockchain, virtual and augmented reality, among others.

By Aseem Thapliyal

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