Reliance Industries' market capitalisation to hit $200 bn in 24 months, says BofA-ML

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. Currently, market capitalisation of the firm stands at $122 billion. Reliance Industries stock is trading at Rs 1,384 level today, 2.3% away from its 52-week high of Rs 1,417 hit on May 3, 2019 and  36% higher than the 52-week low hit on Rs 1,017 on October 25, 2018.

The large cap share has already gained 20% in the last one year and 23% since the beginning of this year. It currently trades higher than the 5-day, 20-day, 50-day, 100-day and 200-day moving averages. 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. 

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"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."

RIL's market capitalisation is seen reaching $200 billion in two years on assumption that Jio's per mobile phone user revenue is likely to rise to Rs 177 in FY22 from the current Rs 151. Rs 750 per month received from 10 million Kiranas for installing M-PoS, and broadband users reaching 12 million by FY22 with 60 per cent of them paying an average of Rs 840 a month are two other projections based on which BofA-ML has given the new market capitalisation target.

"In our bull-case, we look at a 24-month fair-value of the company as we believe most of the new businesses which are in gestation period will take around 24 months to acquire scale and contribute meaningfully to RIL's fair value," BofA-ML said.

Reliance Industries (RIL) is India's largest petrochemical and second-largest oil refining company.

It has significant investments in telecom, consumer retail and media businesses in India. Its telecom subsidiary, Jio has garnered a large number of paying subscribers and has the opportunity to emerge as a top-three telecom player in a growing Indian market on the back of the launch of fiber-based broadband services.

The report said the "upside from base-case is predominately driven by new commerce gaining scale and helping B2B retail momentum as well ($32 billion in additional enterprise value); Jio gaining traction in enterprise, fixed broadband business plus better than expected ad revenues/upselling services ($222 billion in additional EV); more pronounced telecom tariff hike ($10 bn in additional EV); and better than expected IMO contribution plus lower capex for a couple of year".

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India's domestic shipping sector is to implement the International Maritime Organization's low sulfur mandate for marine fuels, which will raise margins for diesel. The brokerage said retail will be the biggest driver of upside as the firm's new commerce business gains traction in the $800 billion unorganised markets. Stating that the entire cellular phone business industry would see a meaningful tariff hike by FY2022, it said telecom business of RIL will contribute more than a quarter of the projected EV (enterprise value).

Also, Jio's entry would expand the SME market - currently the majority of them do not use any enterprise offerings. "In the enterprise business, we expect Jio to target 15 million SME users. In this, we assume 60 per cent conversion (i.e. 9 million paying SME by FY22) and expect each SME to pay on an average Rs 2,000 per month," it said.

It estimated the Jio's broadband business users would be 12 million by FY22, of which 60 per cent could pay an average of Rs 800 per cent, it said. In the oil-to-chemicals business, it expected better than expected IMO impact, with refining margins moving to $13 per barrel from $11.

(With PTI inputs)