Reliance Industries Is India’s First Firm To Cross Rs 10-Lakh-Crore Market Cap

The world’s largest refiner has now become India’s first company to cross Rs 10-lakh-crore in market capitalisation.

Shares of Reliance Industries Ltd. rose as much as 0.64 percent to Rs 1,579.90 apiece—an all-time high. It has risen 41 percent so far this year compared with the Nifty 50 Index’s nearly 11.61 percent gain during the period, according to Bloomberg data.

The rally in the oil-to-telecom conglomerate’s share price raised owner Mukesh Ambani’s net worth to more than $60.7 billion, as of Wednesday, according to Bloomberg Billionaires Index. The richest man in Asia owns half of the stake in RIL.

The company’s market value jumped to Rs 10 lakh crore from Rs 9 lakh crore in just 25 trading days. The journey from Rs 8 lakh crore to Rs 9 lakh crore had taken 284 sessions.

What may have contributed to RIL’s rally this time are an expected rise in gross refining margins, strong finances of its consumer businesses, launch of home broadband business, hike in telecom tariffs, lower capital expenditure intensity, strong growth guidance and an intention to not only deleverage balance sheet but also reward shareholders at an accelerated pace.

Reliance’s GRM—difference between crude oil cost and average selling price of refining products—expanded because of the implementation of new shipping fuel norm. Shipping companies will have to adhere to the International Maritime Organization’s low sulphur fuel regulations starting Jan. 1, 2020. The regulations mandate reduction in sulphur content of bunker fuel to less than 0.5 percent from 3.5 percent to reduce sulphur dioxide emissions globally.

This shift led to an increase in the demand for middle distillates—primarily fuel oil and aviation turbine fuel or high-grade kerosene. RIL, in a post-earnings analyst meet, had said it’s preparing to “reap maximum benefits” from the impending IMO 2020 regulations.

Another factor that helped RIL is its focus on consumer-facing businesses. The company generates close to one-third of its operating profits from its retail and telecom businesses. In the first half of the ongoing financial year, RIL earned 33 percent of its operating profit, or earnings before interest, tax, depreciation and amortisation, from these two consumer businesses.

And the higher contribution from consumer businesses was mainly led by its telecom unit, Reliance Jio Infocomm Ltd., which started its commercial operations in mid-2017-18. Recently, Reliance Jio announced the commercial operation of its fibre-to-the-home business. It aspires to reach two crore households and 1.5 crore business establishment in the next 12-18 months.

Since September, the telecom unit has taken an indirect tariff hike by introducing plans bundled with interconnect usage charge and announced another hike in the coming weeks. These tariff hikes could further boost the company’s earnings.

On the other hand, RIL’s retail division grew mainly on the back of store expansion in smaller towns and cities, healthy same-store-sales growth, operational efficiencies, scale leverage, better store economics and strengthening of private label portfolio.

RIL also aims to be net debt free by the end of financial year ending March 2021 by raising funds and selling stake in its various businesses. The company, with a debt of Rs 1,57,000 crore as of September, aims to cut this by selling 20 percent stake in its refining and petrochemical business to Saudi Aramco, bring in strategic and financial investors in its retail and telecom business and evaluating value unlocking options for real estate and financial investments.

Besides, for the first time, Ambani in an annual general meeting announced the company’s Ebitda growth guidance—15 percent annually over the next five years. RIL’s capital expenditure intensity has now been in a downward trend as its investment cycle has ended. In the first six months of 2019-20, the company spent close to Rs 42,000 crore—less than one-third of the amount spent in the previous financial year.

Hence, the company announced its intention to reward shareholders through higher dividends and periodic bonus share issues, among others.