Technically, RIL (CMP:836), has strong positional support of around 790-763 zone (below 800 level). Consecutive close below 763 area, it could fall up to 739-675 zone in worst case scenario ( low probability as of now).
In fact, RIL already took support of 800 level few days ago & now has to sustain above 845-855 zone for short term target of 870-890 and 915-945 zone. In the mid term, consecutive closing only above 950-957 zone, it could target 1020-1045 zone. In the long term, it may also target 1150 zone and by FY-2018, it could reach 1650 area. ( if, sustain over 1150 zone).
Over the last few years RIL has continuously under performed the market. Crude oil price crash, various on going regulatory hurdles & legal tussles with Govt, recent espionage saga (in which some of RIL executive is allegedly involved), unattractive domestic gas prices etc are all aiding its stock price down to its 52 weeks low.
Looking ahead, RIL has already spent major part of its planned massive capex cycle of around $15 bln in various down stream projects (petrochem & refining) which should start to show results from FY-15 itself. Various analysts are also projecting a higher average EBITDA (50-35%) for FY-15-18, even if Crude is at 40$ at lower end of cycle (65$-42$). On the export front, demand for petroleum products should increase in the coming days, as previous global "gloom & doom" cycle may be over.
RIL is also planning to expand its domestic fuel distribution network as petrol & diesel prices are now market linked in India.
It is also actively considering various exploration ( On Production Sharing Basis) opportunities in overseas countries and expanding fast abroad also, considering Oil & Gas products are becoming a "politically sensitive" product in India as it involves fertilizer & power plants and Govt will not loose control (pricing power) over it easily. But KG-D6 gas field output fiasco may not impact RIL to a great extent going forward, as it contributes very little to its EBITDA wrt to year 2010 level.
RIL is also diversifying very rapidly from retail, online start ups to telecom. It has invested nearly 20% of its capital in telecom business (Reliance Jio-4G). Being a high gestation period type of business, telecom may not break even in the short term for RIL, but in the long term it makes sense. With the out look of better business & regulatory environment in telecom and its concentration on 4G data, RJ may be a significant profit contributor in the coming years for RIL, thanks for expected " Shinning Digital India".
Also, now after costly spectrum auction, telecom business will be only suitable for companies having very deep pocket & strong balance sheet and RIL is one of them, being a virtually debt free company (having nearly INR 80000 Cr in cash/cash equivalents with debt-to-equity ratio less than one). Going ahead, consolidation may be the game changer of the telecom industry & we may see various in-organic opportunity to grow, considering very high cost of operations & comparatively lower call rate (i.e. only large player may exist in the long term).
Thus, funding expansion & diversification will not be a major issue for RIL. But, it has to continuously maintain its projected earnings growth from its core petrochem & refining operations, which is its main cash cow.
In the process, RIL may also set right its chemistry (equation) with the present Govt and both should desist from actively persuading some of the legacy issues (legal war paths) in order for a smooth business functioning in the overall interest of our country as, at the end of the day, RIL is perhaps the biggest private sector contributor for India & no body will invest indefinitely in the oil & gas field, unless the end price is attractive for a reasonable return over its investment.
As par BG model of quick techno/funda valuation metrics, median valuation of RIL is around 1030 (consolidated) in the current market condition. Considering, its projected EPS of around 100 (FY-18), its median valuation should be around 1220 (even with all the other parameters are kept constant at current level).
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | LONG TERM | SHORT TERM | MEDIAN VALUE | 200-DEMA | 10-DEMA |
| RELIANCE | 71.29 | 614.91 | 17.02 | 1054.02 | 1006.63 | 1030.32 | 915.6 | 835.12 |
| RELIANCE | 100 | 614.91 | 17.02 | 1248.34 | 1192.21 | 1220.28 | 915.6 | 835.12 |
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