Reliance Industries slips 5.5% post Q2 results, hits over three-month low

Key downside risks to the RIL stock include deterioration in refining margins, continued weakness in petrochemical margins, and sharper rupee appreciation vs the US dollar

Shares of Reliance Industries hit an over three-month low, falling 5.5 per cent to Rs 1,940.5, on the BSE in the early morning trade on Monday after it reported a 15.1 per cent year-on-year (YoY) decline in its consolidated net profit at Rs 9,567 crore for the September-ended quarter (Q2FY21). Consolidated net revenue also dipped 25.7 per cent YoY to Rs 1.11 trillion owing to weak performance in the refining, petrochemicals, and retail businesses.

The stock was trading at its lowest level since July 21, 2020, when it had touched a low of Rs 1,935 in the intra-day deals. The sharp decline in the market price led to erosion of market-capitalisation worth nearly Rs 74,000 crore in the intra-day trade today.

"After a weak April-June quarter (Q1FY21), we expected a recovery in petchem and retail, while refining was expected to be weak. Reported 2Q refining earnings were much weaker than our estimate. However, petchem, Jio and retail earnings were better than our expectations," analysts at Nomura said in a note.

Consolidated adjusted profit before tax, however, was up 28 per cent quarter on quarter (down 30 per cent YoY), 10 per cent below the brokerage's estimate as the decline/increase in interest cost/other income after the recent stake sale were below estimates due to the timings of cash receipts after recent stake sales, it said.

Further, other key downside risks include deterioration in refining margins; continued weakness in petrochemical margins; sharper rupee appreciation vs the USD;  lower-than- expected R-Jio profitability, and; slowdown in Reliance Retail's growth, the brokerage firm said.

Those at IDBI Capital expect gross refining margin (GRM) and petchem margin to take another 2-3 quarters before inventory depletes. However, margin for retail and Jio may continuously rise on the back of higher store addition, increased contribution from online businesses, higher ARPU (average revenue per user) on tariff hikes and 5G implementations, it said.

"In our view, primary stock triggers—deleveraging, asset monetisation, digital momentum—have played out. Our 2-stage reverse-DCF shows the market is baking in high EPS growth, particularly for Jio (35 per cent p.a. for 10 years). Besides, deleveraging to net cash has counterintuitively lifted RIL’s WACC to its high CoE. We reiterate 'HOLD/SN' with taregt price of Rs 2,105 as recent excessive investor exuberance wanes," noted Edelweiss Securities in a November 1 report.