Has Reliance stock factored in robust Q3?

"Maybe the consensus expectations from the company were wrong," he said.

Excerpts from the interview on CNBC-TV18.Anuj: First thoughts on the numbers?Diwan: Very clearly sensational numbers because of the kind of scale and as you very rightly said the expectation on the earnings before interest and taxes (EBIT) improvement and refining itself was too high and that expectation we probably tempered and is much more realistic. Whereas petrochemical was supposed to be down and that was getting compensated by refining. Both of them it is like 0+1 rather than -1+1. So, that is very healthy. The other interesting thing is that too much of a stretch on refining margin means that law of averages would catch up subsequently. Here USD 11.5 per barrel seems fairly in line with the kind of growth over Singapore margins, so that is also good news and I think petchem is definitely been the saviour this time. Latha: It is too early to tell of course because we are just two weeks or three weeks into the quarter. Does it look like these are maintainable margins at all?Diwan: USD 12 per barrel would have looked even more difficult. That is what I am saying. Relatively, it is a cushion that you have and you cannot keep on outdoing yourself all the time with such stellar metrics.Latha: What is your hunch?Diwan: What is interesting is at the end of the day, profit is EPS accretive largely and that is what is going to be finally be questioned in terms of the price. And, today, closer to Rs 1,100 or plus Rs 1,000 levels, this kind of EPS growth is remarkable. I mean it is definitely more than justified, so you do not have any retracement happening saying the EPS has not grown to the extent we wanted and whether it comes from petchem, whether it comes from largely the refining margins being in place, the bottomline is that today, Reliance is sitting at, if this can get sustained another one quarter, you can imagine what they will close FY16 with. It is a remarkable change in the EPS trajectory that we have seen and that is going to decide the pricing going forward.Latha: Any first comment from you?Tulsian: Seems to be excellent numbers because I am in fact trying to collate all the numbers, I have not been able to. But if you really see petchem, refining everything has really beaten the estimates.Anuj: I know your expectation was lower.Tulsian: I am not going by my expectation. My expectation was 57.70. Let us come on that. So, a jump of exactly Rs 1,000 crore. So, I am unable to understand what kind of expectations. You can set any expectation. Maybe 23, nobody prevents you. I set an expectation of maybe about 12-13 percent. So, now come on the arithmetic also. 10.6 to 11.5. So, that means are you factoring in, in what I presume - in fact I factored in an inventory loss of Rs 220 crore in Q3 because let us understand that in Q3 there was a drop in the crude prices by about 13 percent. But it seems that this gross refining margin (GRM) is factoring in some inventory gain also because companies never give inventory gain or loss separately that gets factored in. In fact that is wrong. We must have those figures separately. But anyway if we just restrict to ourselves I don't think that this has not met the market expectation. Market can set any expectation. How can you expect a jump of more than Rs 1,000 crore, it is Rs 1,030 crore increase of Q-o-Q basis in refinery. This is the best performance.Anuj: That point is taken. All I am trying to say is if you see the rally in the stock for example over the last one or two months it has been big. The stock was at a 52 week high.Tulsian: I got your point but that you cannot substantiate only with refining margin because people have also been talking like that also that on a USD 30 how can you have an expectation of USD 12 GRM as well. So, let us not go by the market arguments. Let us have both the pros and cons. In the circumstances remove the projections, market expectations, price behaviour. You detach yourselves and come with an open mind. Can you really expect better performance on refinery of more than Rs 1,000 crore on a Q-o-Q basis that too when crude prices have fallen by 13 percent in this quarter. I will say no. This is the extraordinary performance for the refinery segment which the company has posted. Even petchem has shown an increase of about Rs 100 crore. I am again referring Q-o-Q. Mind it, the consensus on petchem was a decline.Disclaimer: Reliance Industries owns Network18, which publishes Moneycontrol.com