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Reliance Industries’ much—awaited launch of telecom venture and petrochem and refining expansion plans are likely to be key drivers for the company in 2015, Nomura said in a report.
“2014 has been another disappointment: It is RIL’s seventh consecutive year of underperformance relative to the (benchmark) Sensex, and it likely to be the worst,” it said.
RIL stocks are down 2 per cent this year as compared to Sensex rising by 29 per cent.
The low gas price hike, it said, was a letdown to investors, making exploration and production (E&P) unexciting.
“In 2015, we think most focus will be on the much—anticipated telecom launch. However, focus is also likely to be on the fast—completing petchem/refining expansion plans which should further increase RIL’s competitive advantage, and be a key driver of 70 per cent earnings growth over the next four years,” it said.
While telecom is likely to be a key driver in 2015, Nomura said it believed “petchem/refining growth will bring an end to the long phase of RIL’s underperformance soon.”
Nomura said the sharp underperformance this year was driven by further negative developments in E&P (the low gas price hike virtually ensures that investment in E&P is unlikely to begin anytime soon), high and rising spend in telecom (with not much clarity yet on the timing and offering) and also a relatively weak petchem cycle.
“We think the worst for E&P has already been priced into the shares. In 2015, investors are likely to be eagerly awaiting the launch of telecom, and we think telecom developments will be a driver for stock in near term,” it said.
On the positive side, the ongoing expansion in refining/petchem is likely to continue, and there should be increased visibility on improved earnings growth from FY17.
“With a sharp increase in RIL’s earnings growth visibility, we think the long phase of relative underperformance is likely to end soon and there could be a turnaround of Reliance’s relative performance (vs Sensex) in 2015,” it said.
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