Sustaining above 920-945 expect 1030-1070
Q2 PAT at Rs.6720 cr (12.5% growth YOY), GRM at $10.60
and EPS at 21.95 (estimate 18.75)
and EPS at 21.95 (estimate 18.75)
CMP: 912
Buy either break out above 920-945 or in dips around 900-870 :
TGT: 980-1030-1070 (T+5/30)
TGT: 1150-1300-1450 & 2150 (12-24 & 36 M)
TSL< 840
Note: Time & price action suggests that consecutive closing below 840 for any reason, RIL may fall to 817-793 zone, where it can be again accumulated for better investment buying average.
Rationale:
Q2 result of RIL published yesterday after market hours is above market estimates in nearly all fronts. Record quarterly PAT is supported by sharp rise in GRM, optimal utilization of its petro chem assets (value chain & prudent product mix) and advantageous crude oil price along with relatively strong global demand for fuel.
It appears that massive investments for the last few years (nearly $16 bn) in its petrochem & refining complex and world class technology is showing the desired result and analysts are also expecting a sequential higher GRM of around 12-14 in the coming years and nearly 47% drive in EPS (FY:15-18).
Some negative part of the Q2 result is 34% decline in gross revenue but that is not at all unexpected, because there is also a 51% decline in bench mark Brent oil price (YOY), which also affected its exports from India. But at the same time, Jamnagar refinery is also running at nearly 110% utilization level !!
Thus its a story of strong refining business for RIL in Q2. Now, post analysts concall will add more light on it.
Reliance Retail is also growing in a modest way as par revenue & PBITD is concerned and expanding rapidly across India (now nearly 2857 active stores across 250 cities/towns).
On the telecom front, R-JIO commercial service may likely launch on 28-th Dec (anniversary of Dhiru Bhai Ambani) and on that day we may even see "dramatic handshakes between the two brothers also"!!
(That may be the one of the reason RCOM & other ADAG group of shares are in demand now !!).
Looking ahead, apart from its robust petrochem & refinery core business, all eyes will be on RIL's telecom business potential. There is a strong market buzz that R-JIO's ARPU may beat the average market estimates due to various strategies & services planned by it (that's why the scrip touched 1070 level in late July).
But at the same time, analysts are also skeptical about the likely overhang of its telecom business on its core (EPR) business as massive investments is done on R-JIO. Telecom business (nearly Rs. 100000 cr) may start to show result after 3-5 years and for that time, RIL's core EPR business will match the negative cash flow for R-JIO.
Although there is no concern on data service amid massive mobile & other data service opportunities (digital India theme), challenges may be in the single digit ROE of telecom industries, some regulatory concern, tower infrastructure in urban areas (growing oppositions among local residents for radiation fear), 4G voice calling technology on LTE and mass transmission of 4G calling devices from present 3G.
Although there is no concern on data service amid massive mobile & other data service opportunities (digital India theme), challenges may be in the single digit ROE of telecom industries, some regulatory concern, tower infrastructure in urban areas (growing oppositions among local residents for radiation fear), 4G voice calling technology on LTE and mass transmission of 4G calling devices from present 3G.
As par reports, R-JIO/R-Retail will launch its own 4G-LTE smart phone by Nov'15 called LYF and is in pack with various other manufacturers also for internet based calls under 4G (HD voice & video). R-JIO is also in pack with RCOM for sharing the telecom spectrum across seven telecom circles, which will provide more bandwidth for R-JIO to provide high speed 4G network. The beta testing of the same will be started soon prior to commercial launching.
In short, R-JIO may be the game changer in telecom & data services with its 4G-LTE high speed digital commerce media & payment services for about 300-500 pm and considering the deep pocket of RIL, other players may follow soon. In future, only big players may survive in the over congested telecom business and ROE will gradually improve for less competition.
As par SOTP of Macquarie Research-June report, gross NAV of RIL is 1425 and after discounting for telecom (-285), net NAV/fair value of RIL is around 1140 (FY:16).
But considering the big-bang launch of R-JIO in Dec and its various aggressive strategy to grab the market share in a short span of time along with robust EPR business (sequentially higher GRM with crude possibly in a stable range of 50-70 $ in FY-16), analysts might review their views on RIL and may re-rate the scrip.
Also, there will be some concern on its legal battles from time to time in various forums unless its fully resolved & settled. But having said that, RIL & MDAG, being the largest private sector company in India and very influential, it will be not a big challenge for it to "settle" these legal issues and ultimately, there may not be any adverse impact out of this.
Going ahead, RIL may also try to monetize more of its shale gas assets and de-leverage its retail & telecom arm by next 5-6 years, once these business starts showing adequate bottom line to stand up its own feet.
The scrip has under performed the broader market largely except some occasional news based volatility. Massive capex deployment in its EPR and telecom business for the last few years and depressed crude prices, China slow down may be some of the reasons. Another thing is that it is among the most under owned blue chips in the market among the institutions. Once the stock re-rated, significant demand may emerge.
Thus in the coming days, RIL might take the " market leader" position (as in its old golden days) and may help the Nifty to achieve new highs along with it. No doubt, broader market will need similar block buster results from other blue chips to sustain new highs.
As par BG metrics and current market parameters:
Present median valuation of RIL may be around: 1100 (FY:15)
Projected fair valuations might be around: 1215-1320-1450 (FY:16-18)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| RELIANCE | 82.55 | 673.16 | 16 | 1100.16 | 1086.38 | 1093.27 | 916.38 | 893.57 |
| RELIANCE | 101.25 | 745.5 | 16 | 1218.42 | 1203.16 | 1210.79 | 916.38 | 893.57 |
| RELIANCE | 118.8 | 825.75 | 16 | 1319.79 | 1303.26 | 1311.53 | 916.38 | 893.57 |
| RELIANCE | 145.75 | 915.45 | 16 | 1461.85 | 1443.54 | 1452.69 | 916.38 | 893.57 |
Analytical Charts:
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