Shares of Reliance Industries fell by 3 per cent on Monday even after the company posted a net profit of over ₹10,000 crore for the second straight quarter in FY19.
However, it failed to cheer market participants as the stock slipped 2.76 per cent to close at ₹1,344.8 on the BSE. During the day, it hit a low of ₹1,341.
RIL on Thursday (post-market hours) posted the highest quarterly net profit by any Indian private sector. The consolidated net profit of RIL rose 9.8 per cent in the January-March quarter to ₹10,362 crore and a 19.4-per cent jump in revenue to ₹1,54,110 crore refinery margins.
Though RIL delivered another solid quarter, some analysts are worried about its refinery margin, debt and pressure on petrochemical business.
According to Emkay Research, which downgraded the stock to ‘Hold’ from ‘Buy’, said: “We cut FY20 EBITDA by 7 per cent due to gasifier delay, reduction in petrochemicals margins and lower ARPUs (average revenue per users).” Emkay adjusts FY19-end debt by adding back ₹1 lakh crore of transferred liabilities but maintains its price target of ₹1,335.
Reliance revenue grew by 19 per cent y-o-y while weak refining margins, higher depreciation and interest cost restraints PAT growth to only 10 per cent, said broking house Narnolia. The company has reported a three-year low GRM of $8.2/bbl, due to multi-year low gasoline, naphtha cracks and weak light and middle distillate product.
However, Elara Capital reiterates its ‘accumulate’ rating on RIL, as it remains positive on margin and volume expansion of petrochemicals and earnings growth from telecom (Jio) and retail. “We revise our target price to ₹1,532 from ₹1,333 as we reduce net debt by ₹80/share on Jio liabilities reduction and higher retail earnings,” it added.
IMO regulations to help
HDFC Securities, even upgraded the stock to ‘buy’ as it believes RIL will be the biggest beneficiary of the IMO regulations, as it is the most complex refiner globally. Hiving off R-Jio’s optical fibre and tower assets will unlock value by reducing attributable consolidated debt, it said.
Revised bunker sulphur regulations by The International Maritime Organisation (IMO) will create demand of nearly 3.5 mbpd of Gasoil/LSHS, driving up middle distillate cracks. RIL will directly benefit from this, as about 50 per cent of its throughput at Jamnagar comprises middle distillates, HDFC Securities added.
Target ₹1,835: YES Securities
YES Securities, which sees a price target of ₹1,835 for RIL, says refining segment performance will be dependent on implementation of IMO norms. The company believes that the potential for GRMs to improve is significant as it scales up its petcoke gasifiers in the medium term.