Moneycontrol Bureau
Reliance Industries shares touched a fresh nine-year high of Rs 1,307.05, up 3.86 percent intraday Monday as investors remained bullish on its telecom as well as energy prospects.
Analysts expect contribution from telecom and energy businesses to boost revenue growth in coming years.
While saying Reliance Industries is an idiosyncratic energy play, Morgan Stanley believes company's energy earnings should exceed market expectations as investors begin to appreciate its leverage to an upcycle. Energy return on capital employed is set to rise around 500 basis points by FY20, to 15 percent, in the top five in returns and free cash flow growth globally.
It feels triggers exist each quarter as projects raise free cash flow and dividend per share (DPS).
Credit Suisse says RIL's refining/petchem projects should commission over the next two quarters, adding USD 3.2 billion to EBITDA at peak.
Given FY18 telecom capex (to expand coverage to 95 percent of population) and USD 7.8 billion in vendor payables, Reliance (consolidated) turns free cash flow positive in second half of FY19, it feels.
According to Credit Suisse, strong near-term gains in revenue market share can set a floor for Jio's 'steadystate' market share expectations.
The brokerage house expects two-pronged strategy from Reliance Jio. "One is for higher ARPU customers, retain data rates lower than incumbents, beyond March 2017, to encourage switching; and second for others (primarily voice), launch an affordable 4G smart feature phone, with upfront payment and nominal monthly payments; in addition, tariffs for the current Rs 149 plan (which incumbents nearly match) may need a re-look as well," it explains.
As this high-competition scenario plays out, Jio can make rapid gains in market share, the research firm feels. However, it expects aggregate industry average revenue per user for next 2 years to stay below FY17 level.
Credit Suisse has neutral rating on Reliance as it believes the stock is already pricing in Jio transitioning to a top-2 telecom player (25 percent market share), but it increased target price to Rs 1,200 from Rs 1,020.
RIL has outperformed the local market and the MSCI Global Energy Index by 9-11 percent in 2017. This comes after five years of underperformance.
Overall, since the announcement of new tariff plans by Reliance, which will be effective from April 1, the stock surged more than 21 percent.
At 10:48 hours IST, the stock was quoting at Rs 1,304.10, up Rs 45.65, or 3.63 percent on the BSE.
Disclosure: Reliance Industries, the parent company of Reliance Jio, owns Network 18 that publishes Moneycontrol.com.
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