Reliance Industries share price plunges 3% post Q4FY19 result; is it a buying opportunity for you?
In Q4FY19, Reliance Industries once again saw an uptick in its earnings with robust performance from Reliance Retail, Reliance Jio and other businesses.
On Monday morning, Dalal Street kicked off on a negative note and that included the largest company in terms of market cap in India, Reliance Industries, witnessing heavy selling pressure. Investors were profit booking in RIL shares. At around 1030 hours, RIL shares were trading at Rs 1360.10 per piece, down by Rs 22.80 or 1.65%. However, the quantum of loss in RIL shares at one time was nearly 3% drop, after it touched an intraday low of Rs 1,345.30 per piece. In Q4FY19, RIL once again saw uptick in its earnings with robust performance from Reliance Retail, Reliance Jio and other businesses.On the day of result announcement, investors were upbeat on RIL shares, as it rose by over 3%. However, the sudden opposite trend in RIL has created a question on whether one should you buy this Mukesh Ambani-led company's stock.
Talking about RIL, Nilesh Ghuge and Divya Singhal analysts at HDFC Securities said, "We upgrade RIL to BUY after the 4QFY19 beat. We believe RIL will be the biggest beneficiary of the IMO regulations, as it is the most complex refiner globally. Hiving off R-Jio’s optical fiber and tower assets will unlock value by reducing attributable consolidated debt."
The duo added, "RIL is creating value via (1) Transition from a low-multiple refining business to the consumer-oriented, digitally fired R-Jio, (2) Monetisation and deleveraging achieved by hiving off fiber and tower assets, (3) GRMs rising post the new IMO regulations (est. USD 9.2-12.0/bbl over FY19- 21E). Our SoTP is Rs 1,535/sh (7.5x EV/e for refining, 9x EV/e for petchem, Rs 6.0/sh for domestic E&P, 1x EV/capital for Shale, 25x EV/e for Retail and 10x EV/e for Telecom)."
Amar Ambani Head of Research at Yes Securities said, "Going ahead, refining segment performance will be dependent on implementation of IMO norms. Higher demand for low Sulphur fuel will drive spreads for gasoline. Company believes that the potential for GRMs to improve is significant as it scales up to its petcoke gasifiers in the medium term. In the petrochemical segment, globally, capacity additions will suppress product spreads. However, RIL through its strategy on entering newer segments and usage of raw materials such as carbon fibre, will continue to outperform."
Further, Ambani added, "Retail business momentum will sustain given RIL's reach and new initiatives. For Jio, sustained subscriber addition and expected improvements in ARPU along with operating leverage benefits will lead to exponential PAT growth in the next few years. Jio's demerger of fiber and tower asset will reduce the debt burden. FY21E P/E of 13.6x is attractive considering a consolidated PAT CAGR of 22.7% during FY18-FY21E. Recommend BUY with a 1-year price target of Rs 1,835."
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On the other hand, Avishek Datt analysts at Prabhudas Lilladher said, "We maintain our estimates for FY19/20E. after a sharp run up, we maintain our rating to ACCUMULATE."
In Datt's view, "RIL reported Q4FY19 standalone results with EBITDA of Rs137bn (PLe: Rs142bn) and PAT of Rs85.5bn (PLe: Rs84.9bn) respectively. During the quarter, both refining and petrochemicals profitability came in lower than our estimates. For Q4, GRMs were at US$8.2/bbl (PLe: US$8.4/bbl) due to weak gasoline spreads given high inventory and weak demand. However, gasoil spreads were healthy given low inventory. Q4 refining thruput were also lower at 16MTPA (18MTPA in Q4) due to maintenance shutdown."
Also Datt highlighted, "Management is constructive about refining margins as diesel spreads are likely to get a boost from implementation of IMO 2020, as ~3.5mbpd marine fuel Sulphur standards are likely to come down. RIL is well positioned to benefit given their high complexity. However, gasoline spreads are likely to be under pressure from high new refinery capacity addition of 2mbpd against demand growth of 1.3mbpd."
From what analysts are saying, it can be said that, RIL shares are set to rise going forward and hence it has come forward as buying opportunity when trading on a negative note. If we take into consideration the target prices, then RIL is expected to jump by nearly 35% in future course.
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