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Should you buy more stock of Reliance Industries or sell what you’ve got? Is there going to be an almost 20 per cent upside in the near future, as one brokerage forecasts, or will RIL lag Street estimates? The verdict out there is mixed.
Earlier this week, international brokerage CLSA gave a thumbs up to RIL, saying the company was likely to see a big cash-flow boost as projects of over $40 billion start to deliver this fiscal while capital expenditure falls. It expected that the stabilisation of a just-commissioned refinery off-gas cracker (ROGC) and petcoke gasification projects would boost operating revenue. “The downstream expansions called J3 are likely to fully stabilise in early 2018 and should allow almost a full year of benefit to flow in FY2019,” the note said.
Just this week, RIL announced that it had commissioned the world’s largest refinery off-gas cracker (ROGC) complex of 1.5 mtpa (million tonnes per annum) capacity along with downstream plants and utilities, part of the company’s plans to expand its petrochemicals portfolio.
This is the end of the cycle of RIL’s massive $20-billion core capex plans, of which $4.5 billion was for the ROGC, which is estimated to generate EBITDA of $1.2 billion and return on capital of 21 per cent. Domestic brokerage Edelweiss issued a ‘buy’ call on RIL, saying with “the commissioning of mega core projects, we expect RIL’s free cash flow to turn around, and return on equity and profit to double in four years.”
However, another international brokerage house Jefferies is still coy on the Mukesh Ambani-controlled behemoth. In a report last month, the brokerage downgraded the stock from a ‘hold’ recommendation to ‘underperform’, mainly because of its massive investments in telecom and lack of clarity on when that would pay off. The report said that the stock price — at about ₹920 — already factors in the telecom enterprise value of $46 billion. “An appreciation of 15 per cent in the stock in compound annual growth rate terms would require telecom sector value to increase to $75 billion in three years, which seems unlikely due to elevated levels of capital expenditure.”
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