Will Reliance live up to the Hype?

Shares of India’s largest private enterprise Reliance Industries, often termed as the sleeping giant, hit over a seven-year high on the back of higher volumes intraday on Monday. The stock rose as much as 2.42 per cent to touch a fresh 52-week high of Rs. 1,129, extending its recent streak of outperformance.  The scrip has been outperforming the Sensex and Nifty from the time the company launched telecom services under Reliance Jio.  Since September 5, its shares have increased 11 per cent compared with Nifty which has remained flat during the period.  The launch of Reliance Jio has driven analysts turning bullish on the stock.

As of 10.00 AM, shares of Reliance Industries traded 1.29 per cent higher at Rs. 1,121.50.

Analyst expects Reliance to be free-cash-flow (FCF) positive company in FY18 and further more Reliance Industries is now set for a recovery and the stock is trading at attractive valuations. On 1^stSeptember, Reliance chairman Mukesh Ambani declared the acquisition of 100 million customers for Reliance Jio as the company’s target and aspires to bring 2 lakh villages and 18,000 cities or towns under its umbrella by March 2017. With its commercial launch on 5th September, Reliance Jio has expanded a free welcome offer on its apps till 31 December. The tariff plans varies from Rs.149 to Rs.4,999 per month, with as much as 75GB data included in the top plan.

Most analysts were skeptical on the stock for the past few years, considering its huge investment in the telecom venture, Reliance Jio, which constitutes a quarter of its balance sheet now. Reliance Jio’s earnings profile seemed critical for its outlook. As per the disclosed data tariffs, the average revenue per unit (ARPU) for Reliance Jio could be approximately Rs. 400. Reliance Jio would need a subscriber base of around 40 million to break even at the EBITDA level, and around 30 million more subscribers to break even at the profit before tax level. Analysts have seen significant benefits from RIL’s investments in cyclical businesses.

With the non-telecom business waving signs of a turnaround and positive response for its telecom venture, the scrip could lift off from its current levels. Reliance’s $21 billion investment in Jio for the last six years has faltered the stock performance. But owing to a 30 per cent CAGR in core earnings (ex-Jio) and $20 billion in estimated cash flow over FY 2017-FY19, there is more upside in the stock.

In another news, On 22^nd September, industrialist Mukesh Ambani was named India’s richest person for a ninth year in a row with a steep increase in net worth to $22.7 billion, whereas Sun Pharma’s Dilip Shanghvi was ranked a distant second with a wealth amounting to $16.9 billion.

Reliance is among the top 500 performing stocks for this quarter, out of the 1700 stocks listed on NSE, as analyzed by Dynamic Levels’ analysts. The closest support and resistance level of Reliance share price is seen at Rs. 1089 and Rs. 1149, respectively.