Reliance Industries stock rallies 7%, mcap tops Rs 19.5 trillion

Robust retail, oil and gas performance, steady digital services drive company's earnings growth

Reliance Industries’ (RIL’s) market capitalisation (mcap) crossed the Rs 19.5 trillion mark on Monday, as the stock price of the country’s most valued company rallied 7.2 per cent to hit a new high of Rs 29,005 on the BSE in intraday trade. The stock surpassed its previous high of Rs 2,792.65 touched on January 15.

It ended 6.8 per cent higher at Rs 2,896 per share as against a 1.7 per cent rise in the S&P BSE Sensex. RIL recorded its sharpest single-day rally since September 10, 2020.

At close, RIL’s mcap stood at Rs 19.59 trillion, BSE data shows. In intraday trade, the company’s mcap touched Rs 19.65 trillion and is less than 2 per cent away from achieving Rs 20 trillion. The company achieved this feat for the first time since its demerger with the financial services business — Jio Financial Services (JFS) — on July 20, 2023.

Currently, JFS’ mcap stands at Rs 1.59 trillion. Earlier, on July 19, 2023, RIL’s mcap had touched a record high of Rs 19.21 trillion.

In the past three months, RIL has outperformed the market by surging 28 per cent compared to a 13 per cent rise in the Sensex.

In the October-December quarter of 2023-24, the oil-to-telecommunications conglomerate RIL reported a 9.3 per cent year-on-year (Y-o-Y) increase in its consolidated net profit at Rs 17,265 crore, while its revenue increased 3.9 per cent Y-o-Y to Rs 2.25 trillion.

Earnings before interest, tax, depreciation, and amortisation increased by 16.7 per cent Y-o-Y to Rs 44,678 crore. RIL said the earnings growth was led by robust retail and oil and gas performance, steady digital services, and oil-to-chemicals (O2C).

According to the management commentary, O2C business’ outlook remains positive on healthy diesel-kerosene cracks and steady demand, though volatility would be present due to Organization of the Petroleum Exporting Countries plus (Opec+) cuts and geopolitical issues.

According to the International Energy Agency estimates, global oil demand growth is projected to remain strong led by transportation fuels.

“Global oil demand for calendar year 2024 is likely to be at 103 million barrels of oil per day (up 1.2 million barrels of oil per day year-on-year). Gasoil cracks are anticipated to remain firm due to the strength in jet fuel demand and the limited availability of heavy crude. Further voluntary cuts by Opec+ and geopolitical tensions are expected to keep price and margin high,” Motilal Oswal Financial Services said in its result update. The brokerage firm has a ‘buy’ rating on RIL with a target price of Rs 3,130.

Meanwhile, Jio’s subscriber addition has been strong in the past six quarters, while average revenue per user (ARPU) growth has been moderate, in the absence of tariff hikes.

Analysts at Emkay Global Financial Services expect the robust subscriber addition to endure for Reliance Jio, led by competitive pricing of its plans; the roll-out of 5G that may attract high ARPU customers from Vodafone Idea, or Vi (including postpaid customers), as Vi is yet to roll out 5G; and the launch of JioBharat phone at an attractive price, targeting current 2G customers.

The brokerage firm expects a tariff hike in 2024-25, as telecommunications companies are not earning the required rate of return and will need a tariff hike to recover the 5G investment; and a moderate tariff hike is unlikely to alleviate the cash constraint for Vi. Jio will continue gaining market share amid funding delays by Vi.

With a pan-Indian 5G roll-out, RIL is well-positioned to monetise the services. Additionally, capital expenditure intensity has also come down substantially which shall benefit cash flows. The brokerage firm Centrum Broking, thus, believes the growth momentum to continue in digital and retail supported by oil and gas. Thus, it remains positive on RIL’s growth prospects and maintains a ‘buy’ rating on the stock with a target price of Rs 3,299.