With RIL pricing in Jio, it's over to core now

Led by improved efficiencies & new capacities, chemicals and refining seen putting up strong show

After languishing for many years, Reliance Industries Ltd (RIL) stock has seen a run-up of over 30 per cent since February on hopes of early monetisation of its telco Jio. Higher-than-expected monthly rate of Rs 300 for its Jio Prime plan was received well by investors. This was followed by a discounted offer (available to earlier customers as well) comprising of a recharge of Rs 303 valid for three months. But Jio details that came out with March quarter results offered little. According to the company, Jio had 108.9 million subscribers as on March 31; of these 72 million have signed up for Jio Prime. Most analysts believe Jio will have to continue its offers to limit subscriber churn.

In light of this, analysts believe the telco will turn around at the net level after three to four years. Analysts at JPMorgan had said the key data point would be price packs subscribers finally choose once the discounts end in July. Rising competition needs to be monitored.

For now, after RIL's March quarter or Q4 results, most analysts believe the stock price seems to be adequately baking in the near-term prospects of Jio.

More interesting is RIL's core business of oil and gas, where refining margins stood at $11.5 a barrel in Q4, the highest over the past three quarters. The margin was $5.1 higher than the benchmark Singapore one, the highest in three quarters. Refining offset lower-than-expected results of petrochemicals, where margins were a bit lower than estimates. Refining was a key reason that standalone net profit at Rs 8,151 crore was slightly ahead of expectations even after adjusting for lower interest costs as well as tax rate, and fall in other income. While lower tax rate was due to new accounting standards, interest costs fell on rupee. 

Investors will watch out for management commentary on expansion of projects in oil and gas. "Our positive stance on RIL is based on $18.5-billion capital expenditure on refining and petrochemicals. These projects have begun and will be fully operational in second half of FY18. But, we are concerned about the returns from the huge investments in telco," says HDFC Securities. On a consolidated level, good show of retail business is a key positive. While analysts are bullish on RIL, significant gains in near term are unlikely unless company surprises with faster capacity ramp-up in core businesses.