Shares of Reliance Industries (RIL) on Monday ended at a new lifetime high of Rs 1,616.10 as investors went on a buying spree over an upbeat outlook on its core business and telecom venture. The RIL stock gained as much as 2.4% on the BSE before ending the session at Rs 1,616.10, up 1.9%. The shares had earlier closed at a high of Rs 1,608.15 on January 14, 2008. On an intraday basis, the stock was just Rs 1.25 shy of its earlier high of Rs 1,626.05 — a level it had hit over nine-and-half-years ago. The company, which added Rs 1.75 lakh crore to investors’ kitty in 2017 so far, has gained 49.6%, the best-performing stock in the Sensex. The benchmark Sensex has gained 21.1% during the same period. As on Monday, the company’s market capitalisation stood at Rs 5.3 lakh crore —nearly a tenth of the Sensex’s market value of Rs 55.7 lakh crore. After hitting a peak in 2008, the RIL stock lost its momentum and plunged more than 68% through nine months to October 2008. Nevertheless, it has made a three-fold rise since then. The company’s earnings for the April-June quarter in 2017 surpassed analysts’ expectations.
Its consolidated net profit rose 28% to Rs 9,108 crore for the quarter, supported by robust performance by its core businesses — refining margins soared to a nine-year high of $11.9 per barrel, while profitability of the petrochemicals business rose to a record. “Our Industry leading portfolio of assets in the refining and petrochemicals business contributed to considerable improvement in our earnings for the quarter,” chairman and managing director Mukesh Ambani said post the Q1 results.
However, analysts remain wary on the future prospects of the stock over continued extension of discounting schemes for its telecom subscribers. The company last week announced the launch of its 4G feature phone for a deposit of Rs 1,500— which will be refunded after three years. Domestic brokerage Kotak Securities downgraded the stock to ‘Reduce’ from ‘Add’ on debt concerns. It said the stock is currently pricing-in optimism from both downstream and telecom business. “We remain wary of high capex run-rate and rising net debt levels. The latter may take time to reduce unless Jio accelerates pace of increase in average revenue per user (ARPU)/revenues”.
The net debt of the company increased by Rs 13,693 crore to Rs 1.41 lakh crore at the end of FY17, data from Bloomberg showed. Morgan Stanley, which predicts a positive free cash flow (FCF) by mid-2018, observed “the company’s monetisation plans were picking up pace, while energy margins were driving upside surprises. The capex run rate has slowed and free cash flow drag have almost halved in Q1”. Of the 39 analysts who track the stock on Bloomberg, 59% recommend the stock to buy, while 13 analysts suggest a “holds”, three advice their clients to “sell”.