Reliance shares up 3% post Q3FY18 result; RJio remains key for Ambani

Share price of Reliance Industries (RIL) surged by nearly 3% in early trading on Monday, after the company posted positive third quarter result ended on December 31, 2017 (Q3FY18).
 
At 1025 hours, Reliance was trading at Rs 947 per piece on the BSE, higher by Rs 17.65 or 1.90%. Minutes after when markets opened, the share price of RIL touched a day's high of Rs 953.75 per piece. 
 
In pre-market trading, the company was trading near Rs 949.90 per piece.
 
On January 19, Mukesh Ambani’s Reliance posted standalone net profit of Rs  8,454 crore in Q3FY18, up by 5.38% from Rs 8,022 crore in the corresponding period of the previous year. Q3FY18 net profit also grew by 2.28% as against Rs 8,265 crore in the preceding quarter.
 
Interestingly, it was RIL’s telecom arm Reliance Jio which stole the show by witnessing the first profit during the quarter since the time of its inception.
 
RJio in Q3FY18 posted revenue of Rs 6,879 crore up 11.9% qoq, while net profit came in at Rs 504 crore in Q3 compared to net loss of Rs 271 crore in previous quarter.
 
Mukesh Ambani, Chairman and Managing Director, Reliance Industries Limited for Q3FY18 performance said, “Jio’s strong financial result reflects the fundamental strength of the business, significant efficiencies and right strategic initiatives. Jio has demonstrated that it can sustain its strong financial performance."
 
Ambani added, “We are excited about the prospects of both our energy and consumer businesses due to strong growth in Indian markets and constructive macro environment.”
 
Analysts are very optimistic after RIL’s Q3FY18 performance.
 
Nilesh Ghuge and Himanshu Shah analysts at HDFC Securities said, "3QFY18 saw RIL yet again proving its operational mettle despite weak global GRMs.”
 
The duo added, “Strong GRMs should continue, helped by a delay in the net addition to global refining capacity. The Chinese ban on import of recycled plastics and delayed shale gas crackers in USA will support petchem margins in the near term. Petchem business could see volume led growth with commissioning of ROGC”
 
Talking on Jio's performance, the analysts at HDFC said, “Jio continues to gain 4G subscriber share, making us constructive on the business”
 
With this, the analysts have also raised the stock price target for RIL.
 
HDFC Securities said, “Our SOTP-based target for RIL is Rs 1,080 per share based on Dec earnings (6.5x EV/e for standalone refining, 8x EV/e for petchem, Rs 19 per share for domestic E&P, 1x EV/invested capital for Shale/Retail and 1x investment in Telecom.”
 
Earlier, Harshad Katkar and Srinivas Rao, Research Analysts at Deutsche Bank, said, “We have raised FY19/20e earnings by 4-5% and our TP by 11% to INR 1,150 as we align petrochem spread assumptions to DB regional forecasts, benchmark Reliance Retail’s valuation to peers and factor in a higher revenue market-share for RJIO.”
 
So far in fiscal year FY18, RIL's stock price is trading higher by 39%, even outperforming the benchmark Sensex by 22%.
 
Deutsche Bank stated that the next major catalyst for RIL should be the launch of fiber broadband, likely in mid-FY19E. It will fully leverage Jio’s investment in fiber and content and aid revenue-share gains in the mobile market.
 
With the completion of the largest capex cycle in its history, Deutsche added that  RIL should generate FCF of over $5 billion annually from FY20.