RIL: Performance in line with expectations: Tulsian

SP Tulsian of sptulsian.com, say that the net profit of Reliance is in line with street expectations. If the interest income goes up beyond Rs 1500 crore then the market will be disappointed.

Below is the edited transcript of his interview. Q: With GRM at USD 9.5 per barrel and net profit at Rs 5,367 crore. Is it in line with street expectations or has it disappointed? What is your view?
A: The Street will not be disappointed. Net profit at Rs 5,367 crore is on expected lines. The street will take a call between the segments. If the interest income goes up beyond Rs 1,500 crore, then the market will be disappointed. If the refining EBIT is above Rs 3100-3200 crore then the market will be happy. A breakup of Rs 6,803-crore PBT needs to be seen between these four segments. Q: Any other details are your picking up?
A: In this quarter we saw an extra ordinary jump in the refinery EBIT which now stands at Rs 3523 crore. In the previous quarter it was Rs 2151 crore. A continuous disappointment can be seen in the petchem operations, a flat EBIT has been posted, marginally down. In the Q1, their petchem operation has posted an EBIT of Rs 1,756 crore and Rs 1,738 crore in the Q2. So there is a slight disappointment and a dip of 20 bps in petchem EBIT. However, refinery operation has seen a great surge in margin. Q: A lot of concern around upstream approvals not coming through, constant sparring between the government and Reliance Industries. Do you think that is set to reverse, approvals could come through now?
A: I think the approvals will come as it is the need of the hour for the country also. One cannot afford to delay the production. The prices will be increased before 31st March 2014.
A formula will be worked out, even if the new development plans and capex of 1.5-1.6 billion, which is being asked by RIL goes through. It will take 8-12 months for the company to ramp up the production back.
On the upstream, the company now has to totally focus on ramping up the production or improving the performance of E&P. In this quarter the company reported an extra other income of Rs 200 crore. Now, it has been accepted principle that, the companies continues to have the interest income of Rs 1500-1600 crore every quarter. The interest income will remain to continue. So, this is an attractive result. As petchem operation has remained flat, I expect it to improve in the coming next two quarters. And if that happens maybe the negative outlook on the company's performance or the flat outlook expected from the company with expected EPS of close to about Rs 60-61 can easily get changed once they post similar results for Q3 with some improvement seen in the petchem. So, I am highly impressed with the results. Q: Buyback was a big support for the stock everyone expects downside to be capped at least till January 2013 when they are in the market. You think they will go the whole hog by the entire amount allocated?
A: Buyback is now a history for the company. Considering this result, I don't think that the share will slip below Rs 800 in any market conditions. The stock may rise by Rs 35-40 tomorrow itself. The share can or should rule in a broad range of Rs 830-900. I am not going by the enabling resolution of Rs 860 which prevents them from acquiring the shares beyond that. I expect the share to rule at above Rs 860 level. I don't think that the company will be courageous to buy at the higher levels so I think that the buyback has come to an end at 3.9 crore shares only which the company has effected at an average price of Rs 720. Q: In this quarter there was another important data point that Bharti was down 5 percent on concerns that Reliance will be very aggressive on the telecom front, they will go big in voice. Is that a possibility, Reliance bids higher than the telecom players because it wants to venture out very aggressively into voice, do you think that is possible?
A: I have a different view. If the company is available with ready infrastructure for takeover at much lower valuations then it makes sense to buy a company instead of starting from the scratch which we have seen in the case of broadband wireless access, 18 months have passed but RIL has not been able to launch the operations. A possibility of some acquisitions in the telecom space cannot be ruled out as it will be much faster, but bidding possibility cannot be ruled out. But, definitely they will not be aggressive because Reliance always has seen to be quite conservative.
I don't know the desperation on their part, how desperate they are for acquiring the spectrum, but I still have my reservations that they will be aggressive for auction in the spectrum. Q: How will the stock react on Tuesday?
A: I think the market will cheer this result. PBT has increased by Rs 1370 crore sequentially in this quarter and EBIT on refinery has increased by Rs 1372 crore means identical amount. The increase in PBT level has come from refinery business.
So, I don't think that market can really expect better than this. The stock can move up by 5 percent tomorrow, the stock may even trade in the range of Rs 830-900 in next 15 days.