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Read More >Reliance Industries hits $100 billion market cap: Key things you need to know
Publish date: 13th July, 2018
On July 12, the Mukesh Ambani-led Reliance Industries Ltd (RIL) became only the second Indian company, after TCS, to cross a market capitalisation (market cap) of $100 billion, its stock spiraling 17.5% since the beginning of the year to beat the benchmark Sensex that rose 7.3%. With this, it also regained its 2007 peak.
The RIL stock closed at Rs 1,082.20 on 12th July, up 4.4%, taking the company’s valuation to $100.03 billion (Rs 6.85 trillion) at day’s close. It rose another 1.7% on Friday to end at Rs 1,101, a little short of its day’s high (and 52-week high) of Rs 1,109.
Related: Back to basics:- Understand market capitalisation in detail
Reasons for Market Cap Rise
Stock prices reflect investor sentiment. If investors expect a rise in profits in future, they will be more willing to buy the stock. The increased buying activity often leads to a rise in stock prices.
In Reliance’s case, the reasons for the rise in stock prices can be traced to the July 5 Annual General Meeting (AGM). In the 41st AGM, Mukesh Ambani set a target of doubling revenues in seven years, and announced new business plans to achieve this. All this will be an addition to RIL’s flagship refinery and chemicals businesses.
Related: 5 interesting takeaways from Reliance AGM
RIL’s new plans seem to be the primary thrust behind the rise of its market capitalisation. These are broadly:
- Fibre-based broadband services across 1,100 cities.
- Integration of retail and digital platforms – to make deeper inroads in the e-commerce industry through a hybrid online-to-offline commerce platform.
- Launch of Jio phone 2 – touted as the high-end variety of the Jio Phone.
- Diversification of hydrocarbon business – by adding new chemical chains to produce newer materials and composites of higher value.
- Consumer-centric businesses focus – that is aimed at ensuring that this vertical contributes as much as the petrochemical business.
- Mobile connectivity,
- Fiber connectivity, and
- E-commerce platform.
Investor sentiments seemed galvanized by visions of scaled-up consumer profits because of the strategic move to a technology company that would have three key verticals:
Yet… We aren’t convinced
Our research analysts have assigned a ‘reduce’ rating on the stock with a target price of Rs 930.
Reasons: RIL chairman’s focus is on the consumer business of Jio and retail. The steps envisaged for this “could be the next big disruptions”. However, the recent weaknesses in refining and petro-chemical margins warrant a caution.
“While 80% of RIL’s revenue accrues from refining and petrochemicals, there were weaknesses in regional refining and the petchem business – evidenced by the weak showings of its Singapore complex and key polymers business,” our analysts said in their research note.
What next?
Like any other stock, RIL shares’ future trajectory depends a lot on its upcoming earnings announcements.
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