In the next two year period, the Reliance Industries Ltd. can become the first Indian company to achieve a market capitalization of $200 billion, according to the Bank of America Merrill Lynch's statement on Wednesday, 16th October 2019.
This is because of the back of its new commerce venture and fixed broadband business, according to BofAML. Reliance Industries Ltd.'s market capitalization currently stands at about $122 billion.
As per BofAML's report, “We think that the market is giving less credit to these initiatives that are given limited visibility. We are expecting a near-term momentum to be strong.”
Reliance Industries Ltd. is going to tap the corner shops, or the Kirana stores, for its new commerce venture. It will be offering them mobile point-of-sale and entry into small enterprise space with Microsoft Corp. The company's new broadband business, Reliance Jio Fiber, was launched that is offering internet speeds up to 1 GBPS.
According to the bull-case scenario of BofAML that takes RIL’s market cap to $200 billion had an assumption that the Jio's average revenue per user, or ARPU, is going to be increased to Rs 177 in 2021-22 from only Rs 151, 10 million Kirana stores paying the company Rs 750 a month for installing M-PoS, and broadband users will reach 12 million by the financial year of 2022 with around 60 percent of them paying an average of Rs 840 a month.
As per a report, in the bull-case scenario, they will be looking at a 24-month fair-value of the RIL as it is believed that most of the new businesses which are in their gestation period will take around 2 years or 24 months to acquire a good scale and contribute to RIL’s fair value." Reliance Industries Ltd. is India's largest petrochemical and second-largest oil refining company. It has various investments in the telecom, consumer retail as well as the several media businesses in the country.
The telecom subsidiary of RIL, Reliance Jio, has a huge number of paying subscribers and the company has an opportunity to emerge in the list of the top-three telecom players in the Indian market that is growing, on the back of fiber-based broadband services.
As per the report, The "upside from base case is majorly driven by the new commerce venture gaining the scale and helping the B2B retail momentum as well ($32 billion in additional enterprise value); Jio is gaining traction in enterprise, fixed broadband business + better than ad revenues or upselling services ($222 billion in additional EV); telecom tariff hike ($10 billion in additional EV); and better IMO contribution + lower Capex for some years.”
Retail Industry will still be the biggest driver of upside as Reliance Industries Limited's new commerce venture has gained a lot of traction in the $800 billion unorganized markets. "On average, it is expected that around 10 million Kirana stores to contribute to RIL Rs 750/month on back of its M-POS monthly fees as well as a contribution from inventory management, etc.," according to the report. The report also stated that the entire mobile phone industry will see a tariff hike by the Financial Year 2022, BofAML had said that the Reliance Jio will be contributing more than a quarter of the projected enterprise value. It had estimated the Jio Fiber’s business users at 12 million by the FY22, 60 percent of which could pay an average of around Rs 800 per month.
In the oil-to-chemicals business, Reliance Industries Limited was seen benefitting from the International Maritime Organization’s (IMO) clean fuel norms that will come into effect on Jan. 1, 2020, because it will be raising the margins for diesel. RIL’s refining margins may improve to $13 per barrel from $11 per barrel presently due to the shift to fuel with low sulfur content.
On Wednesday, 16th October 2019, the shares of RIL increased 0.69 percent to Rs 1,372.70 per piece on the Bombay Stock Exchange, while the benchmark Sensex gained 0.24 percent to end the day at 38,598.99 points.
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