Growing clout: RIL now commands 14% of Nifty & 9% of entire market

NEW DELHI: Reliance Industries now alone accounts for 9 per cent of aggregate market value of all the BSE-listed companies from just over 3 per cent in 2014.

While brokerages remain concerned over the stock's valuations from a near-term perspective, they see strong growth for the company and the stock in the long term. They also expect RIL's clout in the BSE universe to rise further in the years ahead.

On Tuesday, as the stock rose 3.25 per cent to hit a high of Rs 2,073.75, its market capitalisation stood at Rs 13,14,127 crore. RIL rights entitlement shares, which got listed in June, are now valued at Rs 50,199 crore, raising the total market-cap of the business behemoth to near Rs 13.65 lakh crore. This is nearly 9 per cent of BSE's total market value of Rs 147 lakh crore.

“The RIL stock remained flattish between December 2009 and 2016. Since then, it has rallied four times. The recent fund raise, deleveraging of balance sheet and several initiatives on the digital and consumer businesses have boosted sentiment and earned the stock a re-rating. At 9 per cent of India’s listed market-cap, it has been a sensational jump of three times from a meager 3 per cent contribution in December 2014,” Motilal Oswal Securities said.

In case of Nifty50, the stock's weightage has expanded to 14 per cent currently from 5.2 per cent in December 2014.

RIL's prevailing market-cap in dollar terms at the current exchange rate of 75 stands at $182 billion. The stock is projected to add another $20-40 billion in 2-3 years.

CLSA expects Reliance’s market-cap to rise to $220 billion by March 2022. "While its long-term promise and underweight position in portfolios may support its stock price, large valuation surprises may be difficult in the near term," the brokerage warned.

Morgan Stanley sees RIL's m-cap at $200 billion in a bull case scenario. “A combination of $11 per barrel gross refinery margin (vs $8.5 at present), a Rs 220 ARPU (vs Rs 138 now ), and $50 a barrel oil by FY22 at current capacity would be key to touch out bull case of Rs 2175 and rise to at Rs 2,222 ($200 billion in m-cap)," it said.

Goldman Sachs said the oil-to-telecom major has doubled Ebitda over the last four years and has the potential to double Ebitda again by FY25, as consumer businesses are on the cusp of a strong growth period.

"We forecast the consumer businesses to deliver FY20-25 Ebitda at 30 per cent growth CAGR and drive over 50 per cent of Ebitda contribution starting FY23, reaching 60 per cent by FY25; this compares to 35 per cent in FY20 and 15 per cent in FY18," it said, while suggesting a target of Rs 2,345.

"Risk-reward remains positive with 45 per cent upside in our bull case and 12 per cent downside in our bear case scenarios,” Goldman Sachs said.

RIL is entering a strong free cash flow (FCF) generation phase, said JM Financial. "The major capex has been completed and there are expectations of strong 17-18 per cent EPS growth CAGR over the next 3-5 years led by digital and retail businesses," it said, and suggested a price target of Rs 2,500 on the stock.

"Given the sharp 100 per cent rally in the share price in last four months, the stock may see near-term weakness as that EPS growth is likely to be muted over next 1-2 quarters. However, we suggest using this opportunity to buy as our three-year target suggests a potential return of 17 per cent CAGR,” the brokerage said.