Reliance Industries declines 2% as investors book profit post Q3 results

The stronger profitability in retail and telecom segments helped offset the sharp decline in the petrochemical margins in the December quarter.

Shares of Reliance Industries (RIL) slipped 2 per cent to Rs 1,546 on the BSE on Monday despite the company logging its highest-ever quarterly consolidated net profit of Rs 11,640 crore for the quarter ended December 31, 2019 (Q3FY20).

The stock has fallen 4 per cent from its early morning high of Rs 1,610 on profit-booking. During the past four months, RIL has outperformed the market by surging 32 per cent, as compared to a 15 per cent rise in the S&P BSE Sensex till Friday. It touched an all-time high of Rs 1,618 on December 20, 2019.

While the consolidated net profit jumped 13.5 per cent year-on-year (YoY), the consolidated revenue decreased by 1.4 per cent YoY to Rs 168,858 crore. "The decrease in revenue was primarily on account of a 10.6 per cent decline in order-to-cash (O2C) business revenues, with lower product price realization, and a 6.6 per cent fall in Brent Crude price," RIL said in a statement. The company announced results on Friday after market hours.

The stronger profitability in retail and telecom segments helped offset the sharp decline in petrochemical margins, the management said.

Petchem EBITDA (earnings before interest, tax, depreciation, and amortization)/mt was down around 20 per cent quarter-on-quarter (QoQ) on the back of a dip in PE/PP deltas by 30 per cent/43 per cent, PX/PTA by 17 per cent/39 per cent and polyester by 15-17 per cent due to higher feedstock prices, supply glut and global demand concerns.

Analysts at Emkay Global Financial Services have cut FY20/21/22 EBITDA estimates by 4 per cent/2 per cent/1 per cent, keeping in mind the weaker petchem margins, "although due to lower capex run-rate and strong Retail and Jio numbers", the brokerage firm retained its target price of Rs 1,740.

“The much-awaited International Maritime Organization (IMO) regulations will boost the core refining business. However, both refining and petchem segments face demand slack, given the impending capacity additions in CY20. We expect both segments to peak out in the near term. The monetisation of Jio’s infrastructure is a catalyst, but timing/pricing is crucial,” analysts at HDFC Securities said in results review note.

“Reported standalone EBITDA (earnings before interest, tax, depreciation, and amortization) was 10 per cent below our estimate at Rs 12,871 crore. Weak margins across petchem products and higher operating expenses have adversely impacted this segment,” the brokerage firm said with ‘neutral’ rating on the stock and 12-month target price of Rs 1,562 per share.