Is Reliance Industries the new dark horse!!
Reliance Industries is a stock which has not moved for a decade and in a decade even bank deposits would have doubled your money .
So why interested in Reliance Industries?? First a technical check ……..
Now ,all three Dow jones , Nifty and Reliance were at same place in 2008 . But after long 8 years Dow is almost 80 per cent up , Nifty 50 100% up and reliance down by 10%.
Forget about all technical and fundamentals jargon’s , this stock shall give least returns of 50%, just to match the average returns.
Lets see what happened in last 8 years
|Sr No||Year||Sales||Net profit||EPS||Stock price on 31st march “Year” approx|
|9||2016||296,091.00||27,715.00||94.01||1033 (As of today)|
Now , If you can see the profits has become more the double but eps is same , but stock is in decade long-range . What could be the reason ??
Read following head lines
“ net profit in the three months ended 31 December rose to Rs,506 crore from Rs,245 crore a year ago. Consolidated revenue rose 16.2% from a year ago to Rs 84,189 crore.”
Now this company is delivering highest profit of all time in its history and its highest profit generating company in India.
Then why share was not moving??
1) There was a family feud and it took a decade at settle . Mr Mukesh Ambani has to give control of all companies to keep OIL (Master stroke) which he knew was worth more than all companies under reliance umbrella.
2) There were non-competitive clause in the agreements with Anil Ambani. Now all this took some 5 years to settle down.
3) If an elephant wants to move it need a big space , a large turf a jungle where he can have plenty of room .
4) So it was shot down to two businesses a) Retail like wall mart i.e reliance retail b) telecom
5) Retail is a investment, We don’t know as of now it will bear fruit or not, It seems its going to have large gestation period.
6) Telecom —-JIO or Jine do
7) So the big drag on company’s balance sheet was the money poured in JIO venture (official figures around 2 lkh crore Most of the companies don’t have that market cap) . So all the money is being poured into JIO and that has made investors shaky.
So what Shikhar capital thinks about this company …
Before that ,India is a large country and is data hungry (hungry for food and who gets food hungry for data . Just go to any public place and you see how India is changing ) . We are in a cusp of a digital revolution. But all that Indians needs is mobile data and at a cost which is affordable. So JIO is perfect.,Especially when its free.
Now reliance was generating so much cash that it needs that big market to deploy it .Telecom industry with large capex need with entry barriers (What happened with Aircel- Maxis deal ) specially the data based just at a nascent stage and reliance fits the best .The competition was with Airtel, Vodafone,and idea. We think idea will disappear. Vodafone parent will not sustain much as the big bosses sitting abroad cannot burn cash at such fast rate. And jio has deployed technology which is 5G and 6G Ready with coverage at 75% of India. Airtel is going to incur huge costs and Vodafone may retreat . So JIO has great advantage with all the FCF being generated from OIL.
Lets do some maths…
- a) Reliance is clamming to have 10 cr users by March end (7.5 cr users already ). Assuming this is the number 10 crores. If they get 100 rs profit from each every month i.e 1200 rs that wil translate into 12000 cr of net profit annually.
- b) B) OIL is generating around 30,000 crore of net profit . With Jio coming on board the combined net profit would easily cross 50,000 crore .
- c) If Jio gets 20 cr customer in two years , and the capex of oil refinery which is now over we expect next year i.e march 2018 , Reliance can post a profit of 40,000 + 25000 = 65000 Crore of net profit . i.e 3 times of 25000 cr (Posted in 2016) so EPS of 100 will go to 300 Rs and even if give we a ridiculous PE of 10 the share prices shall be 3000/-
So again a BOLD call of 3000 Price target of Reliance industries in one year .
What Shikhar capital is not happy about???
- a) Reliance is investing in so many apps like JIo money, Jio chat , Jio cinema.. they intend to take whats app, Netflix which themselves are billion dollar companies now we are not sure of the outcome and can they give fight to all other companies.
- b) Reliance retail not doing well.
One Last thing …
Mutual funds were bullish about pharma , and IT …with trump coming both are going to be kicked at ….
So where do MF deploy money …yes you got it right Banks . but already all top MF’s are 30 per cent in banks and in a situation where credit growth is all time low .. we believe they won’t increase their exposure to banks.
So its matter of time one fund manager turns bullish on reliance and you will get your 100% returns. So at Shikhar capital we believe we are going to see massive returns on this stock ,and don’t forget it’s a Gujrati company (I hope you understand what I mean )
One more last thing …What we do at Shikhar Capital is hedge this stock ..HOW??
Whenever markets are over heated ex. last time it touched 8700 we sold our positions in delta corp, Edelwise , Westlife , Adlabs etc and bought reliance . So when markets touched 7900 , even reliance was down approx 5% and midcap fall 20-40% , we switched from reliance to Adlabs, Jubiliant , Westlfe etc.
So it has double advantage , one you are protected from downside and if reliance is gets to up Trajectory you are in . So the odds are 2/3 which Mr Munger says is the best you can get in Stock markets .