 "Optimism increases on RIL's oil and gas business")
Reliance Industries Ltd (RIL) stock surged about three per cent in Wednesday’s trading session to nearly Rs 1,032, against a 0.7 per cent fall in the Sensex. The surge was fuelled by a report by CLSA which believes the company’s earnings before interest, tax, depreciation and amortisation (Ebitda) should rise 50 per cent in the next two years to $10 billion on the back of downstream expansion. The brokerage has a strong buy rating on RIL and believes 2016 will be a watershed year for the company, as projects worth $30 billion will be commissioned across various businesses.
RIL plans to start its Paraxylene and petcoke gasification plant this quarter and launch its telecommunication venture, Jio, in March-April. It also plans to launch its own 4G smartphones, e-commerce venture and refinery off-gas cracker also this year. CLSA, however, was cautious on RIL’s gross refining margins (GRM), which should come down to $9 a barrel in FY18, from about $ 11.6 a barrel in the December 2015 quarter. Every $0.2 a barrel drop in GRM would hurt its earnings by Rs 130 crore, estimate analysts at Bank of America Merrill Lynch (Bofa-ML).
While CLSA believes the Street’s concerns on the Jio launch are overdone, not all analysts share the optimism. “In our limited hands-on experience with a RJio 4G phone, we found the voice quality was adequate and data speeds (for live TV, movie on demand) were much faster than current market offerings. Whether these continue to perform on full launch will be key to determining near-term stock valuations,” Bofa-ML wrote in a recent note on the company. Thus, near-term stock performance would depend on the newsflow around Jio’s launch and its performance. Most analysts believe RIL’s target of achieving 100 million subscribers in the first year is ambitious.
While most analysts polled by Bloomberg since December remain positive on Reliance Industries, their average target price of Rs 1,132 indicates marginal gains of about 10 per cent from current levels. Analysts are skeptical of the huge investments Reliance Industries has made in its telecom business and believe this might take a longer time to break even. This might put Reliance Industries’ return ratios under pressure. Lower oil prices, though, are favourable for the company, as it can source cheap crude oil and the higher complexity of its refinery enables it to use a larger variety.
RIL plans to start its Paraxylene and petcoke gasification plant this quarter and launch its telecommunication venture, Jio, in March-April. It also plans to launch its own 4G smartphones, e-commerce venture and refinery off-gas cracker also this year. CLSA, however, was cautious on RIL’s gross refining margins (GRM), which should come down to $9 a barrel in FY18, from about $ 11.6 a barrel in the December 2015 quarter. Every $0.2 a barrel drop in GRM would hurt its earnings by Rs 130 crore, estimate analysts at Bank of America Merrill Lynch (Bofa-ML).
While CLSA believes the Street’s concerns on the Jio launch are overdone, not all analysts share the optimism. “In our limited hands-on experience with a RJio 4G phone, we found the voice quality was adequate and data speeds (for live TV, movie on demand) were much faster than current market offerings. Whether these continue to perform on full launch will be key to determining near-term stock valuations,” Bofa-ML wrote in a recent note on the company. Thus, near-term stock performance would depend on the newsflow around Jio’s launch and its performance. Most analysts believe RIL’s target of achieving 100 million subscribers in the first year is ambitious.
While most analysts polled by Bloomberg since December remain positive on Reliance Industries, their average target price of Rs 1,132 indicates marginal gains of about 10 per cent from current levels. Analysts are skeptical of the huge investments Reliance Industries has made in its telecom business and believe this might take a longer time to break even. This might put Reliance Industries’ return ratios under pressure. Lower oil prices, though, are favourable for the company, as it can source cheap crude oil and the higher complexity of its refinery enables it to use a larger variety.