Two things are happening with Reliance: 1. acquisitions, 2. green ground on D-street.
Since the beginning of September, Reliance Industries’s stocks have gained 13 per cent even as Nifty which has had its record run rose 5 per cent.
So, what is driving Reliance?
RIL’s success story no longer only hinges on its O2C (oil to chemicals) business, the Mukesh Ambani-led company has dug its roots deep in the telecom and retail. Jio has apparently become a ‘jeeyo’ (living) factor for the conglomerate.
Reliance’s growth has been largely also driven by its spectrum-trading agreement with Airtel and the new JioPhone announcement in collaboration with Google. Even though the phone’s launch has been delayed, investors are happy to see the stock move, according to a report.
“We value O2C (oil to chemicals) at an EV (enterprise value) of $70 billion, and value retail at $73 billion with a Jio Mart value of $23 billion. We also give a 1x investment value for the proposed green energy/renewable investment. We believe higher oil prices, expectations of a refining margin recovery, and ramp-up of Jio Mart should continue to support the stock.
Incrementally, larger telecom tariff hikes would be seen as a positive,” a JP Morgan note from July 2021 accessed by the publication said.
According to the report, RIL stock reacts when new invesments flow into Jio.
The stock has more than doubled in value from March 2020, when its weight in Nifty was 10 per cent. The company’s weight in the index was just 6 per cent in 2015, and fund managers blame the situation for its underperformance.
Fund managers are looking at RIL as a new-age digital business with top-tier investors, but more importantly, as a consumption story.
“Jio is considered more of a futuristic business and the retail segment has got a valuation based on the stake sales, though if the valuations of retail peers go up, subsequently the valuation of Reliance Retail may also improve,” said Sabri Hazarika, research analyst at Emkay Global.
RIL’s shares began to rally in 2016, after the launch of Jio, owing to its high revenue and low Ebidta margin, much like the company’s Reliance Retail brand, according to the report.
Jio leads India’s telecom subscription pack with 44 crore users, followed by Airtel and Vi. Airtel and Jio have been trading blows in areas such as average revenue per user, where Airtel is leading, and increase in subscriber base, where Jio is leading.
However, Jio is not the only RIL brand raking in investments, as Reliance Retail saw inflow of about Rs 47,000 crore between the last week of September and first week of November 2020.
Over the last five years, the stock has moved nearly 370 per cent, compared with the Nifty’s over 100 per cent gains. Deccan Herald