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Reliance Jio, Retail IPOs may come in the next 3-4 years; this brokerage firm ups RIL target sees 12% upside

Following the stake sale in Jio Platforms, Mukesh Ambani’s RIL has shifted its focus to Reliance Retail. Sanford C Bernstein has maintained an outperform rating on Reliance Industries Ltd shares and raised its target price to Rs 2,470, translating to over 12 per cent upside from current levels. The research and brokerage firm expects a break-up of the company in the next 3-4 years through an initial public offering (IPO) of the Jio and Retail business segments, which it believes should unlock additional shareholder value.

Yesterday, RIL announced that KKR will invest Rs 5,550 crore into Reliance Retail Ventures (RRVL) for 1.28 per cent stake. In just 23 days, the oil to telecom conglomerate has secured an investment of Rs 13,050 crore for an exchange of 3.03 per cent in its retail business. According to Bernstein, Jio continues to grow strongly and gain share. “We see the potential of ARPUs increasing sharply and drive EBITDA margins to expand to 50 per cent by 2025,” it said.

Bernstein noted that Jio is expected to reach 48 per cent subscriber market share and 47 per cent revenue market share in the next five years. So far this year, with back to back investments from global technology investors in Jio Platforms, the company has raised a combined Rs 1.52 lakh crore, including Rs 33,737 crore investment from Google, for an exchange of 32.97 per cent. Earlier this week, Reliance Jio unveiled five new JioPostPaid plus plans starting at Rs 399 which will go up to Rs 1,499. Under the Rs 399 plan, the company is offering 75 GB data, unlimited voice and SMS, Netflix, Amazon Prime and Disney+ Hotstar VIP subscription, and 200 GB data rollover.

Bernstein added that Jio has delivered solid growth in subscribers and ARPU in Q1FY21. Digital EBIT grew 53 per cent on-year and 7 per cent sequentially to Rs 47.1 billion. EBIT margin rose to 44 per cent. Reliance Jio subscribers have reached a new high of 398.3 million at the end of Q1FY21 with a net increase of 9.9 million subscribers during the quarter.

“We expect Jio to gain share and continued market share losses for Vodafone. Jio and Bharti have gained on 4G transitions at the expense of Vodafone,” the brokerage firm added. The AGR verdict will limit Vodafone ability to invest in modernising the network. “Industry ARPUs declined post entry of Jio and we expect this to expand as more subscribers use 4G and use additional digital apps,” it said.

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RIL share price jumps 3% on KKR investment in Reliance Retail; firm secures over Rs 13,000 cr in just 23 days

RIL share price jumped 3 per cent to Rs 2,275.50 apiece on BSE after the company announced a Rs 5,550 crore investment from KKR into its retail business. In the early morning on Wednesday, Mukesh Ambani-controlled Reliance Industries Ltd, in a press release, informed that global investment firm KKR will invest Rs 5,550 crore into Reliance Retail Ventures Limited (RRVL), a subsidiary of Reliance Industries. In a span of less than one month, RIL has received a second cheque of investment for its retail business. Including Rs 7,500 crore from Silver Lake, RIL has received a total of 13,050 crore for an equity exchange of 3.03 per cent in Reliance Retail Ventures Ltd. Earlier this year, KKR invested Rs 11,367 crore in the RIL’s digital arm Jio Platforms. KKR is making its investment from its Asia private equity funds.

RIL stock price hit a new 52-week high Rs 2,368.80 apiece on September 16, rising 173 per cent from its March low of Rs 868. At 10 AM, RIL shares were trading 1.83 per cent up at Rs 2,251.60 apiece taking the total market capitalisation of the firm to Rs 15.22 lakh crore. RIL surpassed the combined market valuation of state-owned listed firms put together. The investment deal between Reliance Industries and KKR, values Reliance Retail at Rs 4.21 lakh crore. KKR’s investment will translate into a 1.28 per cent equity stake in Reliance Retail Ventures Ltd on a fully diluted basis.

Reliance Retail Ventures Limited reported a consolidated turnover of Rs 162,936 crore and net profit of Rs 5,448 crore for the year ended March 31, 2020. The company has topped the list of ’50 fastest-growing retailers globally between FY 2013-2018′ in the Deloitte’s Global Powers of Retailing 2020 index. It also secured the 56th spot this year against the 94th rank the previous year and is the only Indian company to be featured in this list. So far this year, American private equity giant Silver Lake bought a total of 2.08 per cent equity stake in RIL’s telecom and digital services arm Reliance Jio for Rs 10,202 crore.

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TCS share price hits new 52-week high on partnership expansion with supermarket chain Morrisons

TCS share price hit a fresh 52-week high of Rs 2,544.45 apiece, up 3.63 per cent in an otherwise weak market on Tuesday. The IT giant, in a press release, announced that it has expanded its partnership with a leading supermarket chain in the UK, Morrisons, through a five-year contract for application management services, data services and cybersecurity services. Tata Consultancy Services stock surpassed its previous high of Rs 2,538 apiece on September 15, 2020. Analysts say that TCS enjoys a leadership position in the IT services industry driven by strong new-age offerings and best in class methods and practices. “In the last few quarters, TCS has secured strong order intake which provides near term growth visibility. We expect TCS will remain a key beneficiary of buoyant tech demand given its global scale, diversified clientele and strong cash-rich balance sheet,” Suyog Kulkarni, Senior Analyst- IT services, Media and Internet at Reliance Securities, told Financial Express Online.

TCS shares have rallied 41 per cent from March low of Rs 1,504.40 apiece. In the afternoon deals, TCS stocks were trading 3.05 per cent higher at Rs 2,539.85 apiece as compared to a 0.55 per cent fall in the S&P BSE Sensex. The partnership between TCS and Morrisons will help accelerate the latter’s plan to simplify and modernise its technology to improve the shopping trip, eliminate wasted effort and become more popular and accessible to its customers. Morrisons selected TCS as its Application – Managed Services partner in 2016, to improve the customer and employee experience. Since then, TCS has worked closely with the retailer to help drive its growth and modernisation agenda across various lines of business, leveraging its comprehensive portfolio of business and technology services and solutions.

Research and brokerage firm Elara Capital has maintained an ‘accumulate’ rating to TCS. “Large deals delayed in April and May have come back in the pipeline toward the end of June, with TCS appearing confident of signing incremental transformational deals,” it said. While Motilal Oswal Financial Services expects a series of earnings upgrades this quarter (Q2) ranging between 5-10% for large-cap IT names. “Over the medium term, we expect TCS to be a key beneficiary of the COVID-19-driven increase in technology intensity across verticals,” it said. The brokerage firm also added that the continued traction in large deals, a healthy pipeline, and better resilience in BFSI are encouraging factors for TCS.

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India saved Rs 5,000 cr by filling strategic reserves with low-priced oil: Dharmendra Pradhan

India saved over Rs 5,000 crore when the country in April-May used two-decade low international oil prices to fill up its three strategic underground crude oil storages, Petroleum Minister Dharmendra Pradhan said on Monday. India, the world’s third-biggest oil importer, has built strategic storages in underground rock caverns at three places to meet any contingency. “Taking advantage of the low crude oil prices in the international market, India purchased 16.71 million barrels (mbbl) of crude in April-May, 2020 and filled all the three Strategic Petroleum Reserves created at Visakhapatnam, Mangalore, and Padur,” Pradhan said in a written reply to a question in Rajya Sabha.

The average cost of procurement of crude oil was USD 19 per barrel, as compared to USD 60 a barrel prevailing during January 2020. This helped save USD 685.11 million or Rs 5,069 crore, he said. While the 5.33 million tonnes of emergency storage — enough to meet India’s oil needs for 9.5 days — was built in underground rock caverns in Mangalore and Padur in Karnataka and Visakhapatnam in Andhra Pradesh by the government, state-owned oil firms were in April asked to buy crude oil when global rates fell to a two-decade low.

Oil prices globally had slumped after the coronavirus pandemic pummeled demand. The storages at Mangalore and Padur were half-empty and there was some space available in Vizag storage as well. These were filled by buying oil from Saudi Arabia, the UAE and Iraq. The Strategic Petroleum Reserve entity of India (ISPRL) built the underground storages at Mangalore and Padur in Andhra Pradesh and Visakhapatnam in Andhra Pradesh as insurance against supply and price disruptions.

Mangalore storage has a total capacity of 1.5 million tonnes. Of this, half had previously been hired by Abu Dhabi National Oil Co (ADNOC) to store its crude oil. The remaining half was in April/May filled by oil brought by state-owned oil firms. Padur, the biggest of the three storages, has a total capacity of 2.5 million tonnes (about 17 million barrels). ADNOC had in November 2018 signed up to hire half of this capacity but never actually stored oil in it. At present, government-sourced crude fills up half of the Padur capacity, and the remaining 1.25 million tonnes of crude oil was sourced from Saudi Arabia.

The 1.33 million tonne Visakhapatnam storage had a small amount of unfilled space which was filled with Iraq crude oil. India meets 85 per cent of its oil needs through imports. Its refiners maintain 65 days of crude storage, and when added to the storage planned and achieved by ISPRL, the Indian crude storage tally goes up to about 87 days.
This is very close to the storage of 90 days mandated by International Energy Agency (IEA) for member countries.

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