Mukesh Ambani Looking Forward Towards Mark Zuckerberg

Although in April, Zuckerberg invested $5.7 billion in Mukesh Ambani’s Jio Platforms, the Facebook’s co-owner himself didn’t know that Ambani would become so big as to nudge his position on the global list.

Ambani’s prosperity stood at $80.60 billion on Friday, up by a whopping $22 billion so far this year. He has just got past Europe’s richest Bernard Arnault, who leads luxury goods company. Zuckerberg’s total wealth currently is pegged at $102 billion; he has added $23.3 billion so far this year.

A strong rally in the shares of Reliance Industries (RIL) has lifted Mukesh Ambani to the fourth spot in the list of world’s top billionaires, right behind Zuckerberg.

Alphabet Inc. another big investor in Jio Platforms, pumped in $4.5 billion, or Rs 33,737 crore, into the venture for a 7.73% stake. Founders Larry Page ($71.8 billion) and Sergey Brin ($69.1 billion) are placed eighth and ninth on the billionaires’ list. Page added $6.72 billion to his wealth this year and Brin $6.44 billion.

The rise in Ambani’s wealth was due to a sharp 147 per cent surge in RIL shares from the March low of Rs 867. On Friday, the stock rose 0.57 per cent to close at Rs 2,146, giving Ambani’s fortune a $326 million lift, Bloomberg Billionaire index showed.

Stocks

As of Friday, every 1 per cent rise in the RIL stock was adding $920 million, or Rs 6,900 crore to Ambani’s wealth. That number will keep on growing as the base rises. At the end of June quarter, promoter holding in RIL stood at 50.37 per cent; Ambani alone owns a little less than 50 per cent.

Other things remaining the same, Ambani’s wealth would need a 26.55 percent bump to equal that of Zuckerberg.

Shares of five other Reliance group firms – Den Networks, Hathway Bhawani Cabletel & Datacom, Hathway Cable & Datacom, Network 18NSE -0.12 % Media & Investment and Reliance Industrial Infrastructure – have risen anywhere between 40 percent and 800 percent this year, but given the size, they do not add much to Ambani’s huge wealth.

After the recent spurt, some analysts have turned cautious on the RIL stock but most continue to maintain their positive stance on it. That said, most price targets for RIL do not suggest a huge rally from the current level in the short term.

Bank of America Securities on Friday said the risk-reward for RIL stock remains considerable.

It estimates the conglomerate to generate 48 percent Ebitda from the oil-to-chemicals vertical in FY22 against 74 percent at present. On the other hand, Ebitda from consumer businesses is expected to rise to 52 percent by FY22 from 26 percent in FY19.

“The consumer business will be the key growth driver going forward. Post-June quarter, we tweak our FY22-23 EPS by 5-6 percent but our price target remains unchanged at Rs 2,355,” the brokerage said. That target suggests nearly 10 percent potential upside.

Reliance Ind. Markets

RIL’s market capitalization stood at Rs 13,60,880 crore on Friday. RIL rights entitlement shares, which got listed in June, are now valued at Rs 52,378 crore, pushing total m-cap of RIL to over Rs 14 lakh crore, 9 percent of BSE’s total market value of Rs 150 lakh crore.

“The RIL stock was flattish between December 2009 and 2016. Since then, it has rallied four times. The recent fundraiser, deleveraging of the balance sheet, and several initiatives in digital and consumer businesses have aided sentiment and earned the stock re-ratings,” Motilal Oswal Securities said in a recent note.

CLSA expects RIL’s market-cap to rise to $220 billion by March 2022. It, however, warned: “While its long-term promise and an underweight position in portfolios may support the stock price, large valuation surprises may be difficult in the near term.”

Morgan Stanley sees RIL’s m-cap at $200 billion in its bull case scenario. “A combination of $11 per barrel gross refinery margin (vs $8.5 at present), a Rs 220 Arpu (vs Rs 138 now ), and $50 a barrel oil by FY22 at current capacity would be key to touch out the bull case of Rs 2,175 and rise to at Rs 2,222 ($200 billion in m-cap),” it said.

Goldman Sachs said the oil-to-telecom major has doubled Ebitda over the last four years and believes the company has the potential to double Ebitda again by FY25, as consumer businesses are on the cusp of a strong growth phase.

“The consumer businesses should deliver Ebitda growth of 30 percent CAGR over FY20-25 and contribute over 50 percent of Ebitda starting FY23, reaching 60 percent by FY25. This compares with 35 percent in FY20 and 15 percent in FY18,” it said, suggesting a price target of Rs 2,345 for the stock.

“The risk-reward remains positive with 45 per cent upside in our bull case and 12 per cent downside in our bear case scenarios,” Goldman Sachs said.

RIL is entering a strong free cash flow (FCF) generation phase, said JM Financial. “Major Capex has been completed and there are expectations of strong 17-18 percent EPS growth CAGR over the next 3-5 years led by digital and retail businesses.,” it said.

Brokerage Prabhudas Lilladher said despite the recent sharp run-up in RIL stock, positive news flow on global partnerships or stake sale is likely to keep valuations at an elevated level.