Q1 lifts RIL; analysts say downstream expansion, Jio launch key

CLSA has also reiterated its conviction buy on the stock, saying start of over USD 30 billion projects in 6-9 months is a key potential share-price catalyst.

The brokerage house expects the company's 2HFY17 to be action packed.

"Reliance reiterated that its downstream expansions are on track to achieve 100 percent utilisation in FY18 as they start in the next few months with Paraxylene coming in Q2 and remaining projects in 2HFY17. Jio is in the final stage of optimising the 800MHz band in 18 of its 22 circles and the service may be nearing commercial launch. Reliance believes that Jio’s network can easily handle well over 100 million subscribers with data usage of 5GB per month," CLSA says in its note.

Of Reliance's Q1 consolidated capitalisation of Rs 26,700 crore, Rs 8,000 crore is on downstream expansions and Rs 13,000 crore on telecom, which takes total balance sheet size of Reliance Jio to Rs 1.34 lakh crore. However, consolidated net debt fell marginally to USD 14.2 billion.

Reliance Industries' first quarter earnings beat analysts' expectations with the highest ever standalone profit at Rs 7,548 crore, growing 4.4 percent compared with preceding period on the back of robust refining margin. Gross refining margin surged to USD 11.50 a barrel in Q1 from USD 10.8 a barrel in March quarter, which was much ahead of USD 9.5-10.3 a barrel estimated by analysts, though the company indicated that there were exceptional gains of nearly USD 2 a barrel during the quarter due to product crack hedging/inventory gains.

Nomura has remained positive on the stock given optimistic view on its core refining and petchem business. Over the next three years, it estimates an ex-telecom EBITDA CAGR of 11 percent driven by petchem /refining projects.

With its buy recommendations on the stock, Deutsche Bank says over the next six to nine months, RIL should commission projects with investments of USD 38 billion (75 percent of its market cap), adding contribution from capacity additions in its core business and robust downstream margins should drive EBITDA (excluding telecom) growth of over 50 percent in FY16-18.

Commissioning of petcoke gasifier should be in 2HFY17 and ethylene off-gas cracker in Q3FY17. Paraxylene (PX) capacity should be commissioned in Q2/Q3FY17, the brokerage says.

At 11:00 hours IST, the scrip of Reliance Industries was quoting at Rs 1,028.75, up Rs 16.20, or 1.60 percent on Bombay Stock Exchange.

Disclosure: Reliance Industries owns Network 18 that publishes Moneycontrol.com.Posted by Sunil Shankar Matkar