RIL Enters $100-Billion Club After A Decade
India now has two companies that are valued over $100 billion.
Nearly three months after Tata Consultancy Services Ltd. became India’s first information technology major to breach the $100-billion mark in market capitalisation, Mukesh Ambani-owned Reliance Industries Ltd.’s market value crossed the milestone for the first time in the last 10 years.
The country’s largest oil-to-retail conglomerate had last hit $100 billion in market capitalisation on Jan. 18, 2008. The latest surge started with the launch of Reliance Jio Infocomm Ltd. in September 2016 that disrupted India’s telecom industry with cheap data. RIL’s market capitalisation has since doubled.
The rally increased Ambani’s wealth to more than $42 billion, according to Bloomberg Billionaires Index. India’s richest man owns close to 47 percent in RIL—the owner of the world’s largest oil refining complex. The oil explorer and refiner scaled the $100 billion valuation peak despite the rupee depreciating 7.5 percent against the U.S. dollar this year.
What Aided The Rally
The Launch of Reliance Jio
Reliance Jio, with investments close to Rs 2.5 lakh crore, turned profitable within 15 months of launch. The upstart also benefited from the Telecom Regulatory Authority of India’s decision to reduce interconnect fee. Driven by free services initially and then cheaper data plans, India’s newest telecom operator garnered 21 crore subscribers in just a year and a half, according to the company.
Investments Paying Off
RIL uses ethane and gas as raw material for its refining and petrochemicals businesses. These are cheaper, and the prices are less volatile than its alternative liquefied natural gas. LNG prices, which are linked to oil, have risen more than 50 percent so far this financial year.
Use of cheaper substitutes is expected to boost the company’s operating profits and gross refining margins. RIL ramped up the refinery off-gas cracker plant, which will be used to supply gas to the company’s downstream plants.
Analysts expect the company’s earnings before interest, tax and depreciation and amortisation for the ongoing financial year to rise 34 percent—the highest in at least nine years.
Cash Flows Improving
RIL is expected to report a free cash flow of close to Rs 6,000 crore in the financial year ending March 2019, the first time in last six years, according to Bloomberg estimates. In the previous five financial years, the company reported a negative cash flow due to capital expenditure.
- Only five of the 40 analysts tracked by Bloomberg have a ‘Sell’ rating on the RIL stock; 30 suggest ‘Buy’ and five recommend ‘Hold’.
- The company may take more time to generate free cash flow as it will continue to spend heavily on the telecom business.
- This will further delay its deleveraging plans, keeping interest costs at an elevated level.
- Though Jio has been gaining market share, the average revenue per user may face competition because of the pricing pressure in the industry.
- Any sharp movement in oil prices can negatively impact the company.