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RIL likely to surpass TCS in m-cap to attain top slot in 18-24 months

Reliance Industries is most likely to outperform the benchmark indices this year and bring an end to the underperformance seen of the last eight years.

, ETMarkets.com|
Last Updated: Mar 07, 2017, 12.28 PM IST
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NEW DELHI: Reliance Industries, whose stock has rallied over 20 per cent so far in 2017 and added more than Rs 70,000 crore to market capitalisation, is all set to reclaim the top slot and surpass Tata Consultancy Services (TCS) in terms of market-cap over the next 18-24 months.

The stock hit a fresh nine-year high on Monday and will surpass its record peak of Rs 1,626 hit on January 15, 2008, over the next 12 months. It is most likely to outperform the benchmark indices this year and bring an end to the underperformance seen of last eight years.

The first time TCS overtook RIL in terms of market capitalisation was in 2012 when the latter was trading with an m-cap of Rs 2,43,154 crore compared with TCS’ m-cap of Rs 2,48, 114 crore, but then RIL regained the top slot soon after.

The last time TCS overtook RIL was way back in 2013 when the latter’s market-cap hit Rs 2,76,083 crore on the Valentine’s Day compared with TCS’s Rs 2,83,206.84 crore. Since then India’s largest software exporter commanded the top slot in terms of market capitalisation on BSE.



The most aggressive target for RIL that technical analysts have put out is around Rs 1,800 in next 12-24 months. To surpass TCS in terms of m-cap, RIL has to gain 30-40 per cent from its current level.

RIL’s market-cap as of March 6 stood at Rs 4,23,307.2 crore compared with Rs 4,86,823.8 crore of Tata Consultancy Services. The stock which has rallied over 20 per cent this year is all set to get crowned the King of D-Street in 12-24 months as it appears undervalued and under-owned, experts said.

RIL had 5.46 per cent weightage on the Nifty50 as of December 31, 2016, and on Monday, the weightage increased to 6.40 per cent.

“TCS has a market-cap of Rs 4,86,823.78 crore while RIL’s market-cap was Rs 4,23,307.09 crore. If the RIL stock price reaches Rs 1,810, without TCS moving much, then RIL’s market-cap can become highest. For this, RIL has to rally 38-40 per cent from its current level,” AK Prabhakar, Head of Research at IDBI Capital, told ETMarkets.com.

“The time needed could be anywhere between 12 to 15 months in case TCS starts performing, then RIL can take 24 months to overtake TCS,” he said.

Prabhakar said the stock had seen a triangle breakout after nine years of consolidation and made a high since June 2008. He has a target of Rs 1,800 over the next 12 months based on the chart pattern.

Jio plans adding to outperformance
After years of consolidation and underperformance, shares of Reliance Industries are regaining lost ground on several positive developments.

One of the factors highlighted by analysts is the fact that the multi-year investment phase is now complete and the stock is at an inflection point in the refining segment.

“RIL’s refining segment will get a boost from petcoke gasification, a thrust of petchem business from off-gas cracker commencement and ethane imports replacing high cost propane. Apart from that, a leaner cost structure and digital focus in retailing and telecom Ebitda break-even by FY19 are key positives,” said Amar Ambani, Head of Research at IIFL.

“Lastly, it is likely to generate positive free cash flow in FY19. Based on these factors, we see further upsides to RIL’s market valuation. We expect RIL to outperform and regain top market capitalisation, overtaking that of TCS,” he said.

There are many positive developments going in favour of RIL. The major trigger analysts are not forecasting and which is still not reflected in valuations is cash flow from RIL Jio from 2018-19, said experts.

“Since the stock has been an under-performer in last eight years, it is extremely under-owned. This under-ownership will end, triggering technical strength in the stock. Institutional investor - both FIIs and DIIs - would now be eager to own the stock and it will be rerated,” VK Vijaykumar, Chief Investment Strategist, Geojit Financial Services, told ETMarkets.com.

“RIL is ideally positioned to play a major role when the Nifty50 and Sensex climb to new highs soon. Apart from Jio, profitability from refining is also likely to look up,” he said.

Deven Choksey, MD, KR Choksey Investment Managers, said in an interview with ET NOW that Jio is basically showing the potential of producing Rs 60,000 crore worth of revenue in the first full year of working along with somewhere between Rs 28,000 - Rs 30,000 crore worth of Ebitda.

“This could possibly be a game changer for RIL because of the size of profit and turnover that the company would report in the next couple of years,” he said.

TCS below iconic Rs 5 Lakh crore mark
IT stocks have been under pressure and TCS is no exception. Most analysts do not see a runaway rally in TCS anytime soon as it has been weighed down largely by global headwinds emanating from a slowdown in demand and Trumponomics.

“The IT industry, on the other hand, has been facing multiple headwinds due to a high base in penetration, a slowdown in client budgets, digital transformation and protectionism implication on margins,” said Ambani of IIFL.

TCS slipped below its iconic Rs 5 lakh crore market-cap on August 30, 2016 and since then, it has lost Rs 15,000 crore in m-cap.

“The difference in market-cap between TCS and RIL is now around 15 per cent. Considering the headwinds being faced by the IT industry, TCS is not likely to witness any major rally,” said Vijaykumar.

“Therefore, RIL can catch up with TCS’ valuation. This is likely in 2018, not in 2017 since RIL has already run up more than 20 per cent so far this year,” he said.
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