RIL Can Become First Indian Firm To Hit $200 Billion Market Cap In 24 Months: BofAML
Reliance Industries Ltd. logo is displayed at the company’s gas station in Mumbai. Photographer: Dhiraj Singh/Bloomberg

RIL Can Become First Indian Firm To Hit $200 Billion Market Cap In 24 Months: BofAML


Reliance Industries Ltd. can in the next 24 months become the first Indian company to achieve a market capitalisation of $200 billion, Bank of America Merrill Lynch said on Wednesday.

That would come on the back of its new commerce venture and fixed broadband business, BofAML said. RIL’s market cap, at present, stands at $122 billion.

“We think the market is giving little credit to these initiatives given limited visibility,” BofAML said in a report. “We expect near-term momentum to be strong.”

RIL is tapping corner shops, or kirana stores, for its new commerce venture, offering them mobile point-of-sale and entry into small enterprise space with Microsoft Corp. Its broadband business, Reliance Jio Fiber, was launched recently offering internet speeds up to 1 GBPS.

BofAML’s bull-case scenario that takes RIL’s market cap to $200 billion assumed Jio's average revenue per user, or ARPU, increasing to Rs 177 in 2021-22 from Rs 151, 10 million kirana stores paying the company Rs 750 a month for installing M-PoS, and broadband users reaching 12 million by FY22 with 60 percent of them paying an average Rs 840 a month.

“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,” the report stated.

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, Reliance 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 fiber-based broadband services.

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 + better than expected ad revenues/upselling services ($222 billion in additional EV); more pronounced telecom tariff hike ($10 billion in additional EV); and better than expected IMO contribution + lower capex for a couple of year,” the report stated.

Retail will be the biggest driver of upside as RIL’s new commerce business gains traction in the $800 billion unorganised market. "On an average, we expect 10 million kiranas to contribute to RIL Rs 750/month on back of its M-POS monthly fees and contribution from inventory management, etc.," the report stated.

Stating that the entire mobile phone industry would see a meaningful tariff hike by FY22, BofAML said Reliance Jio will contribute more than a quarter of the projected enterprise value. It estimated Jio Fiber’s business users at 12 million by FY22, 60 percent of which could pay an average of Rs 800 per month, it said.

In the oil-to-chemicals business, BofAML saw RIL benefitting from the International Maritime Organization’s clean fuel norms that come into effect Jan. 1, 2020, as it will raise margins for diesel. RIL’s refining margins may improve to $13 per barrel from $11 per barrel at present due to the shift to fuel with low sulphur content.

On Wednesday, RIL shares rose 0.69 percent to Rs 1,372.70 apiece on the BSE while the benchmark Sensex gained 0.24 percent to end the day at 38,598.99 points.

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