RIL stock slips more than 3% on valuation concerns, below-par Jio performance

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Mumbai | Published: May 1, 2018 2:02:58 AM

The stock of Reliance Industries (RIL) declined 3.18% on Monday, the first trading session after its quarterly results were declared, over concerns about valuations and the less than satisfactory performance of its telecom arm Reliance Jio.

Mukiesh Ambani, Reliance Industries, Top 10 holdings of mutual funds, Morningstar, India's most valued, Reliance Industries sharesFurther lower volumes of upstream oil & gas will continue to put pressure on the future as well,” said an analyst requesting anonymity.

The stock of Reliance Industries (RIL) declined 3.18% on Monday, the first trading session after its quarterly results were declared, over concerns about valuations and the less than satisfactory performance of its telecom arm Reliance Jio. The stock ended the session at Rs 963.10 on the BSE, and was the second worst performing Sensex stock on Monday. Reliance Industries posted a net profit of Rs 9,459 crore for the quarter ended March 31, 2018, a growth of 17.5% over same period in the last year. “Gross refining margins came under pressure at $11/barrel vs $11.60 / barrel on a Quarter on Quarter (QoQ) basis. This is due to the cyclical nature of the business. Further lower volumes of upstream oil & gas will continue to put pressure on the future as well,” said an analyst requesting anonymity.

“For the Reliance Jio business, the jump in subscriber base was 23.25% while revenue from operations grew barely by 3.6% QoQ basis. In the last one year stock has moved up by almost 40%, which reflects stretched valuations with the market building up too much expectation from the Jio business,” the analyst added. When asked about the outlook for the stock he said, “The GRMs are at cyclical highs and reflect a possibility of flat growth in future. Reliance Jio will continue its acquisitions thereby diluting ROEs. The stock may give muted returns from here on for the next couple of quarters, till one starts seeing cash-flows from the fiber business.”

In a note, to investors, Jefferies said though the full year FY18 earnings rose 21% and working capital helped cash flow again, but $12.3 billion in CapEx still left net liabilities $4 billion higher at $38.3 billion. “We expect this to fall but gradually even as earnings uncertainties remain,” the note added.

Kotak Institutional Equities, in its note, said elevated capex, still large capital-WIP, high effective debt and Jio’s Balance Sheet took the sheen away from RIL’s remarkable 17% growth in EPS to Rs 59 in FY2018.

“We expect the growth trajectory to slow down from exit-quarter EPS of Rs 16 until Jio picks up, given (1) near full utilisation of petchem projects, (2) limited upside to downstream margins and (3) likely subdued contribution from gasifiers”. The RIL stock has gained 4.6% since the beginning of 2018.

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