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Reliance Industries shares rise on strong Q1 earnings

business Updated: Jul 18, 2016 19:16 IST
Reliance Industries

RIL on Friday reported a better-than-expected 18% year-on-year rise in its first quarter net profit to Rs 7,113 crore (Reuters file)

Tracking gain in the broader markets, shares of Reliance Industries Ltd (RIL) rose close to 2% in Monday morning trade on the Bombay Stock Exchange (BSE) after the oil-to-retail major reported better-than-expected earnings for the first quarter on Friday.

Mukesh Ambani-led RIL was trading 1.7% up at Rs 1,029.90 in the morning trade. The wider BSE Sensex was up 139 points, or 0.5%, at 27,975.55.

After market hours on Friday, RIL had reported a better-than-expected 18% year-on-year rise in its first quarter net profit to Rs 7,113 crore due to higher gross refining margins (GRM). According to Reuters’ estimates, the analysts on an average had expected the company to report a profit of Rs 6,515 crore.

“The beat was driven by better-than-expected GRM of $11.5 per barrel (estimated $10/barrel) led by higher gasoil cracks, nil exposure to negatively-yielding fuel-oil, and higher domestic sales, while hedging and inventory gains contributed $2 per barrel,” said Jal Irani, analyst at Edelweiss Securities.

Maintaining a “buy” rating on the stock, Edelweiss believes “structural revival in downstream margins and conclusion of mega capital expenditure programme will double earnings over the next five years, and raise return on equity by 400 basis points.”

Arya Sen of Jefferies pointed that the full impact of the downstream projects could start showing only from the second-half of fiscal 2018. The hedging plus inventory gains, and higher sales than throughput, which contributed to the GRMs, are one-offs and may not be replicable going forward, Sen added.

“We remain positive on Reliance given our optimistic view on its core refining and petrochemical business. Compared to a compounded annual growth rate of 1% over 2011-2015, RIL’s EBITDA (earnings before interest, taxes, depreciation and amortisation) grew by 18% in 2015-16. Over the next three years, we estimate an ex-telecom EBITDA compounded annual growth of 11%,” said Anil Sharma of Nomura.

Most investors are looking ahead to the company’s commercial launch of Reliance Jio telecom network.

RIL has still not disclosed the exact timeline for the launch. It said on Friday that it currently has 1.5 million test users and the trial programme would be upgraded into commercial launch in the coming months.

Analysts say a launch is imminent and will likely ramp-up on an all-India basis in a very short time. The network, which is in the last stage of completion, would be able to support 200 million users, the company has said.

“The network seems to be ready to start. 2,300/1,800MHz network is radiating across 18,000 cities. Also, 800MHz deployment is completed in most circles, except four, where it has received frequency allocation this month. Even in these circles, the deployment and optimisation of the 800MHz network is likely to be completed in the next 6-8 weeks,” said Nomura’s Sharma.

Nomura and Jefferies too have a “buy” rating on RIL.