RIL leads rally of oil refiners

Posts biggest single-day gain in more than a year

Reliance Industries (RIL) marked its biggest single-day gain in more than a year on optimism that improved refining margins seen by refining companies in the last quarter will continue going forward. Shares of RIL, on Thursday, closed at Rs 981.45, up Rs 50.35, or 5.41 per cent, most since March 7, 2014. The benchmark Sensex during this period is up less than three per cent.

Shares of other refiners, including Indian Oil Corporation, country's biggest refiner, rose most in eight months at 6.45 per cent, while that of Bharat Petroleum Corporation and Hindustan Petroleum Corporation, climbed as much as 2.73 and 2.86 per cent, respectively.

Jefferies India, in a note on June 14, said refining margins (earnings from turning crude oil into fuels) have remained strong in the quarter beginning April 1, Singapore refining margins averaging at $8 a barrel, against $5.80 a year ago.

Meanwhile, RIL shares have gained nearly 12 per cent since the company's annual general meeting on June 12, where Mukesh Ambani, chairman and managing director of the company, gave shareholders a low-down on RIL's plans for the telecom and retail segment in addition to the company's core businesses of petrochemical and refining. Till June 12, there was ambiguity with regard to RIL's Jio plans.

"Most of the company's capex programmes are now over. Investors realise there is possibility of earnings improvement from all the verticals going ahead. Most institutional investors are underinvested in the RIL stock. These investors are now increasing their exposure to the stock given the positives," said Deven Choksey, managing director, KR Choksey Securities.

Choksey added that each of RIL's verticals look very promising. "There is a high possibility that the company will be able to double its profits in next three years as the telecom business is soon going live," said.

Analysts said the street is factoring in better average revenue per user for its Jio plans.

Beta launch of R-Jio's operations is expected over the next few months with commercial launch by December 2015. RIL is targeting monthly data tariff of Rs 300-500 with a sub Rs 4,000 handset.

RIL now has 18 per cent of India's spectrum (across five bands), versus Bharti Airtel at 16 per cent. Its largest chunk is in 2,300 MHz, which has not seen many long-term evolution (LTE) launches globally due to signal strength issues that deemed it more suitable for data than voice.

"Tie-ups provide Jio access to 65 per cent of India's 45 million towers. RIL's asset-light strategy of tying-up with existing tower (and even fibre) providers ensures that back-haul network may not be a constraint," said Macquaire Research in its note released on June 12.

Although RIL has had to face problems from municipalities, housing societies, offices, etc., for laying infrastructure without disturbing the existing ecosystem and addressing concerns around radiation, it has dealt with the issue innovatively by putting up mini-towers on existing street-light poles, traffic junctions, footpaths, etc.

While Jio is expected to do well in metros, scalability of the service in rural areas could be a challenge.