Relationship of NIFTY and Reliance Industries Ltd.
By – Rajan Dodeja
SAP ID – 80012100805
INTRODUCTION
Reliance Industries Limited is an Indian multinational conglomerate company, headquartered in the city of Mumbai, India. It has diverse businesses including energy, petrochemicals, natural gas, retail, telecommunications, mass media, and textiles. Reliance is one of the most profitable companies in India, the largest publicly traded company in India by market capitalization, and the largest company in India as measured by revenue. It is also the tenth largest employer in India with over 236,000 employees. RIL has a market capitalization of US$243 billion as of October 2021.
The company is ranked 155th on the Fortune Global 500 list of the world’s biggest corporations as of 2021. Reliance continues to be India’s largest exporter, accounting for 8% of India’s total merchandise exports and access to markets in over 100 countries. Reliance is responsible for almost 5% of the government of India’s total revenues from customs and excise duty. It is also the highest income tax payer in the private sector in India. The company has negative free cash flows.
OBJECTIVE
To calculate beta of the company and find its significance
VIEWS by BOBCAPS
Announces blueprint for embracing new energy in O2C: With the development of a renewable energy portfolio (solar, use of biomass and hydrogen), RIL plans to repurpose syngas for the production of blue hydrogen and also aims to capture and monetise carbon in phase-1. As the company evolves its electrolyser ecosystem with cost-effective green hydrogen, it aims to once again repurpose syngas as a feedstock for chemicals.
Syngas subsidiary to involve strategic partners and investors: RIL is carving out a gasification business with a net asset value of US$ 9.6bn as a separate subsidiary. It aims to structure the arm as a job work contractor to produce syngas, hydrogen and carbon for RIL and also to provide a minimum offtake guarantee. Management has guided for an initial valuation of US$ 4bn for this subsidiary.
Upside from use of H2 as fuel: In the first stage, RIL expects the subsidiary to see valuation upsides from better utilisation of the syngas plant via production of blue hydrogen and carbon capture. RIL too will derive upsides from the shift away from fossil fuel as well as from monetising hydrogen and carbon.
Upside from use of syngas as feedstock: As green hydrogen becomes competitive and RIL’s electrolyser ecosystem develops, the subsidiary will derive higher prices for syngas as a feedstock as against fuel use. Management plans to add value by expanding into the specialty chemicals chain, involving strategic partners and technology licensors.
Front-loading of value unlocking: RIL aims to tie up with strategic partners and investors to derisk the use of new technologies. The approach also helps unlock value at an early stage, as seen in the company’s telecom and retail businesses.
Maintain HOLD: We retain our SOTP-based TP of Rs 2,520 which values RIL’s refining business at 7.5x FY24E EV/EBITDA, petrochemicals at 8.5x, telecom (Jio Infocomm) at 10x and retail at 32x. Our TP includes Rs 111 for the value of its venture into digital services and Rs 47 for the new energy division.
DATA COLLECTION
Data of index and equity were collected from https://www1.nseindia.com/ and https://www.nseindia.com/ respectively. Daily returns from 1st March-2021 to 28 Feb-2022 were downloaded in excel format from these websites and it was sorted into weekly format. Then weekly returns were calculated for both index and equity and then regression analysis was done.
DATA ANALYSIS
Predicted Y = 0.058006+0.505015X
N=47, R Square= 0.135527, F= 6.898041
Tstat (beta) = 6.24053832901454
Tstat (0.05,45)= 2.0141
The above regression equation tells us the relationship between X and Y. Where X is NIFTY’s weekly returns and Y is Reliance Industries Ltd’s weekly returns.
The positive sign of Beta tells us the that there is a positive relationship between NIFTY and Reliance Indsustries Ltd’s weekly returns.
From the equation, it can be seen that if X rises by 1 unit, Y will rise by 0.505015 units.
T calculated is more that T tabulated which means, β is statistically significant at 5% confidence level.
R^2 is 0.469523 which means 47% of Y (Reliance Industries Ltd) is explained by X. And the balance is explained by error.
F is 38.944318 which is more than table value which means model is statistically significant at 5% level.
CONCLUSION
β is statistically significant in case of NIFTY and Reliance Industries ltd. Also, it can be concluded that Reliance Industries ltd is a low beta share.Since it is less than 1.