Stock touches a life-time high after nearly 10 years… Nearly 10 years after the stock of RIL touched an all-time high in January 2008, the stock once again reclaimed a life-time high during the week. The last rally in RIL had happened between 2005 and 2008 when the stock had actually been a multi-bagger. Interestingly,…
Reliance New High
Stock touches a life-time high after nearly 10 years…
Nearly 10 years after the stock of RIL touched an all-time high in January 2008, the stock once again reclaimed a life-time high during the week. The last rally in RIL had happened between 2005 and 2008 when the stock had actually been a multi-bagger. Interestingly, in the last one year the stock is up by over 80% and its market cap has touched Rs.5.30 trillion and it is the most valuable company in India today. Both TCS and HDFC Bank have some major catching up to do. In fact, RIL looks poised to be the first Indian company to scale $100 billion market valuation. But, what exactly were the triggers?
Healthy GRMs…
This is the bread and butter of RIL. The last few years has seen a massive surge in value of Reliance Industries. This has been largely led by the gross refining margins (GRM) of RIL consistently quoting at a premium of $4-5 over the Singapore benchmark. RIL GRMs at nearly $11-12/bbl are literally unmatched in the entire refining business. It is this healthy GRM that has enabled RIL to sustain its profits even at a time when oil prices were weak. This outperformance by the refining division has been one of the key factors that have helped RIL create a cash stash to fund its subsequent business investments. In addition, petchem margins at RIL are also among the best in the industry. This has resulted in a long term re-rating of RIL. Integration pays off…
The superior GRM and petchem margins that RIL is enjoying today are largely an outcome of the big integration bet that the company has taken over the last 2 decades. It has built properties across oil extraction, natural gas, oil refining, marketing as well as downstream products like petrochemicals. This control over the entire hydrocarbon value chain helps RIL to earn superior margins compared to competition. Above all, in uncertain market conditions, the company is able to de-risk its overall business portfolio by shifting focus on the more lucrative ones. That is exactly what RIL has been doing in the light of weak oil prices!
Finally, it is all about Jio!
To be fair, the biggest chunk of the RIL outperformance has coincided with the launch of Jio in September 2016. With a data-only focus and superior ARPUs compared to industry, RIL has had the luxury of falling back on its massive war-chest of oil profits to fund the telecom venture. The company has apparently sunk nearly Rs.250,000 crore into the telecom business but has gained approximately that much in terms of market cap in the last 1 year. Obviously, the shareholders are not complaining. Jio probably explains this new high for RIL and also underscores why this story may be much bigger that what is visible today! READ MORE-Best Online Stock Trading, Financial Services & Mutual Funds Investment Solution provider India - Trustline
