Most brokerages remain upbeat on Reliance Industries Limited (RIL), after the company posted a 7 per cent jump in its net profit for the April – June quarter of financial year 2019 – 20 (Q1FY20) at Rs 10,104 crore. The company announced its numbers for the recently concluded quarter post market hours on Friday.
Revenue came in 22.1 per cent higher than the Rs 1.41 trillion in the corresponding period a year ago. Gross refining margin (GRM) for the quarter came in at $8.10/barrel.
RIL's telecom arm, Reliance Jio, posted a net profit of Rs 891 crore. Average revenue per user (ARPU) came in at Rs 122, while revenue from operations came in at Rs 11,679 crore, up 5.2 per cent. READ THE DETAILED FINANCIAL PERFORMANCE HERE
The stock trades at Rs 1,250 levels on the NSE and has gained 13 per cent in the last one year and has been one of the key contributors to the Nifty50’s gain during the period.
Most brokerages expect the stock to do well over the next couple of quarters as well and maintain ‘buy’ / ‘outperform’ rating on the counter. Here’s how they have interpreted the Q1FY20 numbers:
Reliance has maintained an upbeat outlook on expansion in refining margins due to IMO 2020 and has prepared ahead of industry with many initiatives. Reliance expects petchem spreads to improve from here as China has seen improved run rates in polyester. Significant progress has been made to launch fibre to home services very soon, while new commerce initiatives could be launched in FY20. Fibre InvIT is expected to get investors very soon as well.
We keep our earnings estimates unchanged, and derive our 12-month price target of Rs 1,500 from a sum-of-the-parts valuation valuing retail, refining and petchem on EV/EBITDA, and telecom and upstream on discounted cash flow (DCF). Maintain buy rating.
We expect gross refining margin (GRM) to recover to $11.7/barrel by FY21, driving 18 per cent EBITDA CAGR over FY19-21, accounting for a third of incremental EBITDA during the period. We continue to retain ‘BUY/sector outperformer’ with SOTP-based target price of Rs 1,652/share (10.4x FY21 EV/EBITDA).
Reliance Jio (RJIO) reported lower-than-expected revenue growth (up 5.2 per cent QoQ versus 6.2 per cent expected) due to sharper-than-expected decline in ARPU to Rs 122 (Rs 124 expectation) from Rs 126 QoQ. We believe, sale of non-core assets by all the three telecom operators will be a key trigger for industry recovery. For RJio, we see demand coming from rural areas, as the rural broadband penetration is at 19 per cent. Going ahead, affordable devices will drive adoption.
RIL's Q1FY20 was noisy, as expected, with a slew of adjustments marring EBITDA comparison. Core performance was soft, with lower refining margins, petchem volumes, and telecom ARPU. With capex elevated (though off its highs), net liabilities rose to $36.9 billion, despite lower working capital. With FCF uncertain, EPS at risk, and valuations rich, we maintain our Underperform rating and Rs 990 price target, with lower liabilities post the InvITs offset by lower enterprise value (EV) in telecom and retail.
While profit after tax (PAT) was in line on higher interest, depreciation and tax, EBITDA was 7 per cent higher on lower opex for Jio and petchem. We cut FY20/21E EPS by 11 per cent/16 per cent on lower petcoke GRM and ARPU. Brookfield's entry marks the start of effective deleveraging. We raise/cut multiples for retail / refining but with a positive view. Maintain 'Hold' with a target price of Rs 1,375.
We are keeping FY20 and FY21 estimates unchanged and maintain our target price of Rs 1,400 where we value its core business at Rs 911, upstream at Rs 50, Retail at Rs 191 and Jio at Rs 491. We upgrade the stock to ACCUMULATE from HOLD due to recent correction in the stock.