What do you make of the big up move in Reliance shares in a matter of two days? What did we miss out over there?
RIL share prices peaked out around September-October and was underperforming. Within 14,300 to the current range, Nifty might have moved 2-3 times but Reliance kept sliding from the peak by almost Rs 350.
Now look at the triggers for the stock. Its petrochemical business is a play on the consumption story in India. O2C business is also a play on the consumer side. Globally, fuel demand is on the rise and refineries in the US are facing disruption.
Every other oil PSU has reported inventory gain in the last quarter. I am sure Reliance has also gained.
Currently, fuel demand for exports is on the rise except in the last 2-3 days. Covid is making news in China and Asia and so that may have some kind of an impact. But the US consumption during the summer season is likely to be at peak. The demand-supply mismatch would lead to Reliance being in a better place.
Oil-to-petrochemical margins are looking far better because the delta has increased. With enhanced capacity, value-added production is good. The oil-to-chemicals division should contribute an additional 15-20% on overall margins. Any incremental throughput should lead to higher margins.
The icing on the cake can be Reliance AGM within a month or so. Once the annual report is out, we would get to know where the oil-to-chemicals business is headed and what is the status of the strategic sale. NCLT has already approved the demerger.
Q1 is going to be disappointing as far as the consumer story is concerned. Coming to Jio, the government is asking telcos to do 5G trial. High-end customers in big metro cities would start moving from 4G to 5G. Competitors are indicating that ARPUs will move from Rs 150 to Rs 300 in 3-4 years. Along with them, Reliance Jio’s ARPU would also move from Rs 138-140 to Rs 175-200 in the near future. Jio’s other applications and home-to-fiber service should also do well now because it is a three-player game.
On the retail side, Reliance will have to do something on the value chain and increase their footprint.
The key trigger to watch out is the AGM and see if there are specific announcements on oil-to-chemicals. I would also look at ARPU numbers in Q1. The number of users are not going to increase dramatically from here but an increase in ARPU is the best thing.
