Reliance Industries (RIL) has been a fascinating conundrum for analysts and investors alike. Between 2005 and 2008, it was the toast of the Street, rallying 10x, topping out at Rs.1,400 a share. However, since then, for nearly half the past decade, it has significantly under-performed the broad market, while oscillating within a range of Rs.900-1,200. This is despite the fact that the company has been reaching new landmarks in terms of profitability and scale in every single quarter. Today, it stands on the cusp of completing one of the biggest capex witnessed in corporate India with the launch of the world’s biggest start-up, Reliance Jio.
While there are little doubts on its core operations, the overhang of its massive telecom venture continues to plague investors’ minds while evaluating the stock. Has RIL finally turned a corner? Will 2017 see the big bang return of India’s biggest private enterprise? We certainly believe so. We see the stock as our top pick of 2017. Our confidence is underlined by the following three key points:
Commissioning of key oil-sensitive projects
RIL’s highly profitable core projects are nearing completion. This is at a time when oil prices are rising, which further enhances profitability of the petcoke gasification (higher GRM), off-gas cracker (higher spreads) and ethane import projects. While upcoming projects are sensitive to oil pr