RIL becomes first Indian company to cross ₹10 trillion in market cap

Mukesh Ambani-led Reliance Industries Ltd (RIL) on Thursday became the first Indian company to cross ₹10 trillion in market capitalization, with its shares surging nearly 41% since the start of 2019.

The stock closed 0.65% higher at the end of the day’s trade at a record high of ₹1,579.95 to reach a market value of ₹10.02 trillion. During the day, the scrip gained as much as 0.91%, touching a life-time high of ₹1,584.

Reliance Industries, which had first closed above ₹1-trillion market cap on 19 August 2005, added every successive trillion rupees in 418 trading days, 109 days, 27 days, 2,398 days, 73 days, 180 days, 22 days, 284 days and 24 days, respectively.

“Higher refinery margins, potential for telecom tariff raise, bottoming PE cycle, start of gas production, lower capital expenditure intensity and path to deleveraging have led to investors asking if our bull case could play out despite above-average forward multiples. Sequential rise in earnings quality keeps us OW (overweight),” said Morgan Stanley in a 19 November note.

Investors continued buying Reliance Industries shares after the company said it will increase tariffs in the next few weeks—a development that analysts expect will boost revenue growth.

Among analysts covering the stock, 29 have a “buy” rating, six have a “hold” rating, while two have a “sell” rating, shows Bloomberg data.

“With Reliance Jio too announcing its intention to hike tariffs and join incumbents, it appears now that any tariff increase from here on are likely to sustain. This development gives us a sense that a meaningful increase in tariffs and improvement in average revenue per user (ARPU) is quite likely, at least by 15-20%. Our analysis suggests that average revenue per user could possibly improve 40% to 50% if Trai (Telecom Regulatory Authority of India) was to decide floor tariffs for both voice and data”, said brokerage firm SBI Caps in a 19 November report.

“Another factor worth watching is whether Reliance Jio matches the incumbents on pricing or continues to operate 20% below incumbents. If Reliance Jio decides to match the others on pricing, Bharti Airtel and Vodafone may benefit from lower churn, and Reliance Jio will likely emerge as the largest beneficiary on revenue increase,” the SBI Cap report added.

The stock also gained after the company said it’s planning to make Reliance Jio a net debt-free company by the end of 2019-20 by transferring ₹1.08 trillion of debt from Jio to Reliance Industries.

It also announced the restructuring of its telecom and digital assets, and its plans to sell a stake in the new arm to strategic investors.

“A weakened Vodafone-Idea allows Reliance Jio to accelerate market share gains. The recently announced debt reshuffling and strategic divestment plan, peaking of the capital expenditure cycle and the possibility of tariff rationalization could lead to higher earnings and potentially multiples,” said Emkay Global in a note to its investors.

Analysts said the stock can continue to gain.

There was a recent consolidation, which was fairly utilized as a minor dip.

These dips may be seen in the future and any correction in the stock by 3-4% should rather be seen as an opportunity, analysts added.