- Currently, RIL commands a market cap of $122 billion
- Digital initiatives like advertising, lending along with SME/broadband could add $22-billion incremental value
Reliance Industries would be the first Indian firm to cross a market cap of $200 billion in 24 months, Merrill Lynch, Bank of America, said on Wednesday. RIL is reportedly controlling a $122 billion market cap. The international fund and consulting firm affirmed its RIL purchase score with a price target of 1,615. The bull-bear analysis shows a distorted risk-reward of 36 percent CAGR up from the current market price in the bull-case scenario and a downside of 17 percent in bear-case in 24 months, the research firm said.
In a survey, BofA-ML said its analysis indicates that incrementally three disruptive engines— new business company, fixed broadband sector, and digital initiatives — could add an enterprise value of $55 billion for the enterprise.
The “upside from base case is predominantly driven by new commerce gaining scale and helping B2B retail momentum as well ($32 billion in additional enterprise value); Jio gaining traction in enterprise, fixed broadband business + better than expected ad revenues/upselling services ($222 billion in additional EV); more pronounced telecom tariff hike ($10 billion in additional EV); and better than expected IMO contribution + lower capex for a couple of year,” the report stated.
Retail will be the biggest upside catalyst as the new business of RIL gains traction in the unorganized $800 billion industry. “On average, 10 million kiranas are expected to contribute to RIL Rs 750/month on the basis of their M-POS monthly fees and inventory management allocation, etc.,” the study said.
While noting that FY22 would see a substantial increase in tariffs across the mobile phone industry, BofAML said Reliance Jio would contribute more than a quarter of the estimated value of the company. It estimated Jio Fiber’s 12 million FY22 business users, 60% of whom would pay an average of Rs 800 per month, it said.
RIL‘s new trade initiative is aimed at empowering kiranas in the unorganized retail market, it said, adding the company’s entry into SME enterprise space where its relations with Microsoft and attractive pricing ($22/month) could attract a takeover. In addition, Jio’s broadband fiber business where Den / Hathway networks could be leveraged to drive India’s current 6% low-fiber broadband penetration, he said.
In the oil-to-chemicals market, BofAML saw RIL benefit from the clean fuel standards of the International Maritime Organization, which come into force on January 1, 2020, as it will increase diesel margins. The refining margins of RIL could currently be increased to $13 per barrel from $11 per barrel due to the change to low sulfur oil.
RIL shares on the BSE rose 0.69 per cent on Wednesday to Rs 1.372.70 per cent, while the Sensex index gained 0.24 per cent to finish the day at 38.598.99 per cent.
We assume that, given limited exposure, the market gives little attention to these initiatives. We expect to be high in the near term, driven by the introduction of IMO 2020 and continued share gains in telco and retail. In the bull-case scenario, a further $17 billion could be added, driven by better-than-expected cellular tariff hikes / better GRM due to IMO.