RIL stock won't react too positively on Monday: Baliga

Market would cheer oil and gas major RIL's first quarter earnings because the company has posted impressive GRM margins, said Ambareesh Baliga, COO, Way2Wealth. "The petchem margins are lower than expected, but I suppose the markets would surely go by the spectacular GRM margins, he told CNBC-TV18.

Reliance Industries' net profit for the June quarter fell 21% to Rs 4470 crore on dwindling margins in its refining and petrochemicals businesses. Sales, however rose 13.4% to Rs 94926 crore, YoY due to higher petchem volumes. The gross refining margins (GRMs) have or the difference between the cost of crude and the price of refined products was around USD 7.60/bbl versus USD 10.3/bbl, YoY. However, he doesnt expect the stock to react majorly positively to the earnings on Monday. "I really don’t see too much of a downside from here, about Rs 700-705 will be a very good support. The upside could be limited to about Rs 745-750," he elaborated. Below is the edited transcript of Baliga’s interview with CNBC-TV18. Q: What do you make of the initial numbers, we have the GRMs that beat street estimates, and we also have big surprise decline in petchem, about 19%. How do you think the market will read this? A: When I heard the profit was Rs 4,470 crore which is higher than expected the first thought which crossed my mind is possibly the other income is higher. But the other income is lower than last time and the gross refining margins (GRM) are much higher than streets' expectations, the markets would surely take this positively. The petchem margins are lower than expected, but I suppose the markets would surely go by the spectacular GRM margins, which they have shown. Q: How do you see the market react to this on Monday? Are you expecting the stock to react downwards or could there be the refining segment supporting the stock price? A: The stock surely will not react majorly positively to this result which is slightly better than what people were expecting. But at the same time, I suppose it will provide that cushion which is very much needed by that stock in addition to the buyback which is still going on. So, the way things are I really don’t see too much of a downside from here, about Rs 700-705 will be a very good support. The upside could be limited to about Rs 745-750. I don’t think it will really go beyond that unless there is something happening on the gas pricing front post 2014. Q: How do you see the stock reacting, do you expect it to have a positive opening or will it be negative? What about the buyback, they have crossed the minimum limit of above 25%? A: Like I said, with the results you have a decent cushion at levels closer to Rs 700-710 and possibly on Monday there could be slight amount of uptake. The stock could move up a bit more from here, but surely this result will not yield in sort of a frenzy buying in Reliance. As far as the buyback is concerned, I expect that it will continue like the way it was happening in the last couple of months. So, that pace will continue.