What Lies Ahead For Reliance Shares In 2020 After Its Massive Rally This Year

The Reliance Industries Ltd (RIL) stock has been a top performer in 2019 among the biggies. The company’s shares have risen by almost 40% so far, outperforming the Nifty 50 index, which has appreciated 11%.

Investors are seemingly thrilled about RIL’s deleveraging plans and, more recently, the tariff hikes by telecom firms including its subsidiary Reliance Jio Infocomm Ltd.

But, what should investors watch out for in the New Year?

After the sharp rally in the RIL stock this year, a repeat performance in 2020 in terms of percentage returns would be too much to expect, said an analyst, requesting anonymity. At the current price of Rs 1,566.60, the stock trades at 20 times estimated earnings for FY20.

Investors will watch the revenue momentum for telecom firms, including Reliance Jio. This road doesn’t appear to be straight.

Jio has reintroduced the Rs 98 price point and is charging an additional Rs 10 voucher for off-Net calls. On the other hand, incumbents Bharti Airtel Ltd and Vodafone Idea Ltd have removed the cap on off-Net calls, but kept tariffs at a higher level.

“Effectively, this has brought down the minimum tariff plan. We now need to see if the tariff war restarts,” said JP Morgan India Pvt. Ltd in a report on 11 December. “From here, how the incumbents react and whether we see government intervention in tariff plans would be the key variables to focus on.”

One would also have to observe how consumers react to telecom tariff hikes and whether data consumption falls.

Besides, investors will also watch the extent of improvement in the gross refining margins (GRMs) as a result of the implementation of the new rules of the International Maritime Organization starting next year. GRM is the key measure of profitability for refiners. For the December quarter though, benchmark Singapore GRMs have declined sharply year-on-year, as well as quarter-on-quarter.

The company’s retail business is expected to continue its good run with store expansions and strong revenue growth.

The trend of RIL’s outperformance vis-à-vis broader markets will sustain, according to analysts.

“Reliance has been a material outperformer year-to-date and given strong news flow in deleveraging, Jio strategic sale, and tariff hikes, we would expect the outperformance to continue,” said JP Morgan.

Progress on the company’s deleveraging plan remains crucial. So are the developments relating to the strategic sales in the telecom business. RIL intends to become a zero-net-debt company by March 2021.

In this regard, the closure of the deal with Saudi Aramco will be paramount. RIL will sell 20% in its refining and petrochemicals business to Aramco.

At its annual general meeting in August, RIL had said that it expects the Aramco transaction to be completed by the end of FY20.

In October, the company had said that it had created a subsidiary, Jio Platforms Ltd, which houses its telecom and digital services businesses. This will enable better monetization of the business. Most of Jio’s debt will be transferred to parent RIL, to attract investors. It goes without saying that investors will keep a close eye on the news flow on this front. – Livemint