With Monday’s fall, the RIL stock has corrected nearly 30% since the outbreak of coronavirus in the middle of January against the Sensex’ fall of 15% during the same period.
Shares of Reliance Industries (RIL) plunged 12.4%, pulling down the RIL stock to below Rs 1,200 level on Monday amidst heavy selling, as Brent crude prices fell to $35/barrel. RIL’s profitability is closely linked to crude prices, with petrochemicals contributing to 45% of its operating income in FY19 and refining another 27.5%. Low oil prices would negatively impact its earnings.
With Monday’s fall, the company has also lost its position as the most valuable firm to Tata Consultancy Services. On Monday’s close, the market capitalisation of RIL stood at Rs 7.06 lakh crore and that of TCS at Rs 7.4 lakh crore.
The Brent prices tanked as much as 31.5% in intra-day trade on Monday, after Opec and Russia parted ways. Monday’s fall is the biggest single-day fall in the last eleven years seen in RIL’s share price. Investor wealth of Rs 99,463 crore has been wiped out following the rout.
For the quarter ended December 2019, the revenue of RIL slid 1.4% to Rs 1.68 lakh crore primarily on account of 10.6% decline in oil-to-chemicals (O2C) business revenues, with lower product price realisation and 6.6% fall in Brent crude price. While revenues from the refining business fell 7.2% y-o-y to Rs 1.04 lakh crore in Q3FY20, the company reported 19.1% fall in petrochemicals segment during the quarter. The revenue from petrochemicals segment fell to Rs 36,909 crore due to lower price realisation across product categories. “The petrochemicals segment Ebit was at `5,880 crore, down 28.5% y-o-y, with significant decline in margins to near trough level for most petrochemicals products, as a result of new capacity, inventory overhang and global demand slowdown,” the company said in its Q3 media release.
However, analysts at Goldman Sachs believe that correction in the RIL stock looks overdone and energy valuation has halved in current sell-off. According to the brokerage, the share of consumer business is rising to 50% of Ebitda by FY20E, with sharp growth in telecom and retail businesses. “We estimate the sharp decline in RIL’s share price is implying that the value of the refining and chemical segment has halved versus the start of the year, under-performing even pure-play refining and chemical peers with simpler assets,” Goldman Sachs said in a note.
With Monday’s fall, the RIL stock has corrected nearly 30% since the outbreak of coronavirus in the middle of January against the Sensex’ fall of 15% during the same period. In the backdrop of collapsing talks between Opec and its non-Opec partners, the analysts at HSBC Global Research have cut their Brent price assumptions to $49 per barrel for 2020. “This comes on top of a rapidly deteriorating demand situation – we assume zero global demand growth in 2020,” the brokerage said in an investor note.