TCS Or RIL: Who Will Hit The Rs 10-Lakh-Crore Valuation Milestone First?
It’s a two-horse race to become a Rs 10-lakh-crore company in India.
It’s a two-horse race to become a Rs 10-lakh-crore company in India.
Tata Consultancy Services Ltd. and Reliance Industries Ltd. have been vying for the distinction of India’s most valuable company by market cap for some time now. Both are now inching closer to the crucial milestone.
And TCS has outpaced RIL so far this year, gaining 19 percent. Shares of the oil-to-telecom conglomerate led by India’s richest man Mukesh Ambani rose 14 percent during the period. In June alone, TCS gained 2.4 percent compared with RIL’s decline of 3.8 percent. HDFC Bank Ltd. is a distant third.
TCS and RIL—with a market cap of Rs 8.5 lakh crore and Rs 8 lakh crore, respectively, as per Monday’s close—outperformed the benchmark Nifty 50 Index’s 8 percent gain this year.
Despite TCS’ better run on the stock market, the forecasts of sell-side analysts are skewed toward RIL. About 61 percent of analysts who track the company have a ‘Buy’ rating for RIL compared with 51 percent for TCS.
The Bloomberg consensus target implies a 12 percent upside for RIL in the next 12 months, while the IT sector bellwether is expected to drop. The three analysts with the highest targets for both the companies indicate a 7 percent upside for TCS compared with a 20-30 percent gain for RIL. A 30 percent jump will help RIL cross Rs 10 lakh crore in market cap.
Valuations seem to be favouring RIL. The oil-to-telecom company is trading at 13 times its one-year forward earnings—on a par with its 10-year average. TCS commands a premium to its long-term average.
Here’s what analysts cite as catalysts and concerns for RIL and TCS:
Outlook For RIL
Catalysts
- Clarity on InvIT structure will aid balance sheet.
- Separate listing or fundraising for telecom and retail businesses.
- Growth in Reliance Jio and retail business to offset slowdown in core business.
- Capex done in oil business; generates significant cash.
Concerns
- Refining and petrochemicals businesses remain weak.
- Lower oil prices impact core business.
- Lack of pricing power in telecom business.
- Debt on books.
Outlook For TCS
Catalysts
- Management sees double-digit growth trend in medium term.
- Well-diversified portfolio, strong industry presence and stable margin trends.
- Strong push in digital space.
Concerns
- Little room for disappointment on earnings given rich valuations.
- Tight labour market in the U.S. and H1-B visa constraints.
- Growth concerns due to high penetration in banking, financial services and insurance vertical and retail segment.
(The reasons have been compiled from brokerage reports of JPMorgan, UBS, CLSA and Goldman Sachs.)