RIL shares outperform Sensex after 7 years, rally may continue in 2016

Reliance Industries (RIL) shares outpaced BSE Sensex for the first time after seven years. The share price of the country’s largest private sector company surged 13.63 per cent in 2015 against 5.03 per cent fall registered by the benchmark index in the year gone by. In 2014, RIL shares fell 0.41 per cent against 29.89 per cent gain posted by Sensex.

For the year 2016, market experts believe RIL can once again beat benchmark indices and can surge upto 28 per cent in the next 12 months. However, the 30-share index can jump 20 per cent this year.

Last year, the company posted the highest gross refining margin (GRM) in last seven years at $10.6 a barrel for the quarter ended September 2015 against $10.4 a barrel in the preceding quarter. According to SMC Investments and Advisors, GRM of the company was ahead of market estimates of $8.3 a barrel. GRM in the year-ago period was $8.3 a barrel. RIL’s premium over Singapore complex margins widened to $4.3 per barrel during the quarter ended September 30, 2015, the highest level since early 2009.

reliance industries shares

GRM is the difference between the total value of petroleum products coming out of an oil refinery (output) and the price of the raw material, (input) which is crude oil. The margins are calculated on a per-barrel basis.

The company continues to build towards the roll-out of Jio’s services, with the imminent launch of a range of 4G smartphones under the ‘Lyf’ brand aimed at helping build an ecosystem of handsets compatible with the full range of Jio’s service. Of late, the company had announced the launch of 4G service for its employees under the Jio brand name. Mukesh Ambani will begin the commercial roll out of the telecom venture Reliance Jio in the coming weeks.

During the year, RIL and RCom also filed intimation with the DoT for sharing of 800 MHz spectrum in seven cities. Deutsche Bank in a research report in December said, “Over FY15-18e, we expect RIL’s EBITDA ex-telecom to rise by a CAGR of 16 per cent as against anaemic EBITDA growth at a 4 per cent CAGR over FY10-15.”

During July-Sept 2015, Reliance Retail expanded its reach with a net addition of 110 stores in Q2FY16 and number of stores at 2,857 across 250 cities. The company has strong presence in South and West and robust sales have seen in private lables.

SMC Investments and Advisors in a research note said, “The company maintained a rapid pace of construction activity during the quarter ended September 2015. Its world-scale petcoke gasification facility and ethylene cracker complex remains on track for its planned 2016 start-up. In digital services, it has substantially completed the network roll-out across the country and initiated the process of beta testing of network and platforms, thus we expect the stock to see a price target of Rs 1,289 in 8 to 10 months.”

On January 1, shares of Reliance Industries were trading 0.53 per cent up at Rs 1,018. IndiaNivesh Securities is also bullish on RIL and believes RIL shares can hit Rs 1,300 in 2016.

RIL reported return on equity (ROE) of 11.3 per cent in FY15, down 50 bps YoY. According to market experts, the key reason for decline in ROE was increase of Rs 75,000 crore in capital work in progress(CWIP) under the ongoing capex programme that pulled down asset turnover sharply.

IndiaNivesh in a note said, “We expect ROE to improve from FY17, when its large projects will commence. Further retail business is continuously progressing well and telecom business is likely to contribute in overall revenue from FY17.”