Retaining its “buy” recommendation on the Reliance Industries (RIL) stock, global brokerage firm CLSA on Wednesday said RIL is likely to turn cash flow-positive this fiscal by reaping benefits of its downstream expansion and expects the company to monetise its Jio telecom network.
During 2017-18, the Mukesh Ambani-led RIL was expected to end a four-year run of negative cash flows and report a consolidated free cash flow of nearly $1 billion, according to the Hong Kong-headquartered CLSA.
“This year will see a big cash-flow boost as projects of over $40 billion start to deliver in full swing while capex falls.
“Stabilisation of ROGC (refinery off-gas cracker) and petcoke gasification would boost Ebitda (earning before interest, taxes, depreciation and amortisation),” said the CLSA research report.
On Tuesday, RIL announced the successful commissioning of the world’s largest 1.5 million tonne per annum (MTPA)-capacity ROGC complex at Jamnagar in Gujarat along with downstream plants and utilities.
According to the brokerage, monetisation of the ROGC complex, coupled with the petcoke gasification plant, which is in an advanced stage of commissioning, will boost the Ebitda, or operating income, of the company.
However, RIL “should allow almost a full year of benefit to flow in fiscal 2018-19. Stabilisation of these projects would give a big boost to oil and gas earnings over 12-15 months”, the report said.
Noting that RIL’s telecom network Jio’s monetisation plan entails raising smartphone Arpus, and expanding 4G feature phone subscribers, along with the launch of its broadband and enterprise offering, CLSA said: “We will also start to see cross-selling and other ways to monetise Reliance’s wide customer base, which will be the key long-term value driver.”
Focusing on its telecom venture in 2017, RIL managed to gather nearly 15 crore subscribers on the back of cheap plans and high capacity data network, while CLSA now expects the company to monetise not only Reliance Jio Infocomm customers but also its “industry leading capacities”.
RIL’s telecom venture can monetise its customer base by cross-selling retail products, CLSA said.
“While we also expect a notable decline in capex intensity through 2018, at the same time, successful launch of broadband and enterprise businesses could further add to estimates,” it added.