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RIL retains position as most profitable company among Nifty 50

A view of RIL's petroleum refinery at Jamnagar in Gujarat
A view of RIL's petroleum refinery at Jamnagar in Gujarat
At the close of the extended results season for the April-June 2016 quarter, energy and petrochemicals giant Reliance Industries Limited (RIL) has retained its position as the most profitable company among the Nifty 50 – a widely followed benchmark in the Indian stock market. 
 
The Mukesh Ambani-led company, which now also has a major presence in the retail and telecom sectors, continues to remain the single largest contributor to the aggregate net profit of the Nifty 50.
 
RIL’s consolidated net profit of Rs. 7113 crore for the April-June 2016 quarter was 12.6% higher than the Rs. 6318 crore reported by Tata Consultancy Services (TCS), the second best performer in the Nifty.
 
And, compared to the net profit of Rs. 4232.5 crore posted by the public sector Oil & Natural Gas Corporation (ONGC), RIL’s largest energy sector peer among the Nifty 50, it is 68.1% higher.
 
The aggregate net profit of the Nifty 50 for the quarter stood at Rs. 69,793 crore, which means RIL has alone contributed 10.2% of it – rising from the 8.1% for the corresponding period a year ago. 
 
This high level of contribution is expected to continue as several of RIL’s large scale projects are set to become operational in near future.
 
At Wednesday’s close of 8762.6, the Nifty is trading at a price-to-earnings ratio (P/E) of 23.9, with an EPS of 364.8.
 
Every additional rupee in the aggregate net profit of the Nifty improves the index’s EPS, and thereby justifies its level. The Nifty’s current valuation is considered excessive by many experts, and they anticipate a correction. Unless the earnings growth of the Nifty 50 companies picks up fast, the current level of the Nifty index might become unsustainable.
 
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RIL’s scrip has gone up over 21% in the past one year, outperforming the benchmark index that climbed 10.8%. This helped the company improve its weightage in the Nifty from 5% in September 2015 to the current 5.4%. (An individual stock’s weightage in the Nifty is decided not just by its market capitalisation, but also by free float.)
 
The Nifty index, which was trading at a price-earnings ratio (P/E) of 21.8 a year ago, now stands at 23.9. In comparison, RIL’s valuation has barely increased from a P/E of 11.7 to 11.9 over the same period. Due to this, most of the brokerage houses are bullish on the RIL scrip. A leading foreign brokerage CLSA, in its July 2016 report, has iterated its conviction on RIL, stating, “Start of projects worth $35 billion in the next six months could be a key catalyst; conviction BUY stays.”
 
The April-June 2016 results season had been extended by a month by market regulator Securities and Exchange Board (SEBI), allowing India Inc. extra time to adopt the new Ind AS accounting standards.
 
Coal India’s results on September 13 was the last from the Nifty 50 companies. 
 
NNN
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