Australia fund Platinum takes position in RIL

Australia-based Platinum fund, having $18.5 billion worth assets under its fold, has added Reliance Industries Ltd (RIL) to its portfolio with bullish outlook on downstream projects, as also company’s re-entry into telecom business with Jio later this year. In its latest report, Platinum Asset Management said it has exited “from the short-lived hope for the aluminium sector with a smaller profit than last quarter, and exited Oracle and Bharti Airtel to make way for new... These include RIL.”

“The bull market in India has completely eluded RIL. Being one of the world’s largest refiners and processors of hydrocarbons (into fuel, textile yarns and plastics) is hardly considered ‘sexy’ in today’s service-led markets. 

“Hurting sentiment has been the lack of profit growth in the last four years after a stunning fivefold rise in profits in the first 10 years of this century. The company is now in the midst of a new investment cycle where it is upgrading its petrochemical capacity and launching into new fields,” it said.

Platinum said the activity at its Jamnagar refining complex, the world’s biggest, involves the introduction of a petcoke gasifier and an offgas cracker. “Their returns will be somewhat compromised by the present low oil price but will nevertheless produce 10-15 per cent on new 

investment,” it said. 

On RIL’s re-entry into telecommunications business, it said though investors have questioned the company’s ability as a newcomer to break into a crowded market but there infact is an opportunity for Reliance Jio as few companies in India have standing and free cash flow of $6 billion a year to force their entry.

“This is indeed a bold dream involving an investment thus far of $14 billion and potential losses of around $1.8 billion in the first full year of operation in 2016. However, even with this burden, we can see Reliance’s PE down to 13x by March 2018.  “This may appear to be of limited appeal.  In a market where some consumer firms sell on a PE of 30x, we are happy to take an initial stake with the hope of being able to raise our position on probable setbacks in what will be seen subsequently as a firm representing a 'call option' on India," it said.