RIL to see 2-3% uptick; petchem biz boosted Q4 nos: Pros

Reliance Industries (RIL) on Friday reported good earning numbers for the fourth quarter. The company’s net profit rose 1.4 percent to Rs 7,320 crore and the gross-refining margins (GRMs) came in at USD 10.80 per barrel. Petrochemical earnings before interest and tax came in at Rs 2,729 crore as against Rs 2,639 crore in previous quarter. It was the petrochemical (petchem) business that boosted growth for RIL in the quarter gone-by, analysts on CNBC-TV18 say. Prayesh Jain, AVP - Research at IIFL says that the company’s operating margin has also improved in Q4. Crude throughput, which was at 18 MMT has come down to 17.8 MMT and will fall further in Q1FY17, he adds. Prakash Diwan of prakashdiwan.in says the company has managed to maintain growth trajectory in last few quarters and some re-rating on the stock is expected.Market expert Ambareesh Baliga and Jain both expect the stock to open 2-3 percent higher on Monday morning. Disclosure: Network 18, which publishes moneycontrol.com, is now part of the Reliance Group.

Below is the verbatim transcript of Prayesh Jain, Ambareesh Baliga and Prakash Diwan’s interview with CNBC-TV18's Anuj Singhal and Kritika Saxena.Anuj: This looks like petchem has bailed them out?Diwan: Absolutely, that is exactly what I said. While we could probably see a little bit of softness in GRM which was very much in line given the Singapore GRMs also being at about USD 8. There were enough metrics in the petchem and this was after a long time that we have had a quarter without any shutdowns related to maintenance whereas globally we are seeing a lot of other players have not been able to scale up the capacities and we had seen these indications come through in the last couple of quarters that petchem would at some stage start peaking out and that is what happens.Anuj: What is your call? This time it has not gone into the numbers with elevated expectations, we have discussed that. Do you think that will come into picture Monday morning?Diwan: Yes, now possibly people once they digest the numbers there are two parts to very quality numbers coming through on a quarterly basis, one is does the street expect improvement on these numbers and it says it gets even tougher. So, you can't re-price the stock and start having your earnings expectations to be much higher. They would remain in line with what has been for, let's say, the previous quarter. But a relief that they have been able to maintain these kind of growth trajectory means that the stock possibly needs a Price-to-Earnings Ratio (PE) multiple to change a bit and I would be slightly charitable in giving that to this company now. That is what is kind of being missing in the case of Reliance for a long case now. Almost like 8 quarters. In fact ever since we had the buyback we had seen a PE multiple changing dramatically and that could possibly happen irrespective of Rel Jio because that is a very separate business, separate timeline. If you look at the core business of refining and petchem alone we are expecting a rerating of the stock purely on a PE basis not just on earnings per share (EPS) trajectory.Anuj: Any surprises that they haven't mentioned anything on Jio. It could be in the next press release for all you know but the basic press release that we have there is no mention of Jio?Diwan: Jio still very clearly seems to be work in progress. The way we still have permissions coming from spectrum uses and all. But the positive indication is the launch of the ad-campaign. They are already kind of sensitising the market to their brand of handsets which were to go along with Rel Jio and that life thing that we just saw before the results were out. If that is any indication and remember they will not start it spending on ANP much before the launch. It has to be in sync with or well timed with the launch itself. So, my sense is you will hear a separate release on the Rel Jio details which will be fairly detailed and this would probably need to have its fair of glory under the sun on account of the superior numbers itself.Anuj: What’s the key highlight for you for me it’s the petchem number. What else have you notice?Jain: You rightly mention petchem definitely a surprise for me actually even my focus was GRM were expected to be USD 10.5. They are better than what I was expecting. Overall, even in terms of operating margin performance it’s better than what I was expecting. Overall operating margins are at 21.5 percent vis-à-vis my expectation of around 18 percent, so it’s definitely much ahead of what I was expecting the numbers are pretty strong.Anuj: Monday morning what’s the call on stock?Jain: I think the stock should open in the positive zone. Definitely the numbers are ahead of expectation of the entire street, so the stock should definitely open higher. It could be around 2-3 percent easily higher.Anuj: Have the crude throughput number 17.8 million metric tonnes (MMT). Any comment on that?Jain: That again slightly higher than what I was expecting. I was expecting to be around 17.5-17.4 kind of levels. They were at 18 in the previous quarter, so we were expecting a slight dip but that number is positive, but quarter ahead the number will be lower because they have some shutdown.Anuj: What is your first thought? We have the petchem number which is clearly above estimates, we have the refining number where it is the gross refining number is clearly in line with market estimates, lower than your estimate but in line with market estimate and we have oil and gas with negative earnings before interest, taxes (EBIT), your first thoughts on the number?Baliga: These numbers clearly are better than what we are expecting. Like I said those numbers on the street were correct as far as the net profit figures is concerned but they clearly went wrong. The GRM, the street expectation was about 12 this afternoon. It is more or less in line with what we were expecting. We were expecting 10.5-10.6 and I was expecting closer to 11-11.2. so, that is in line more or less, so, overall a good set of numbers and based on this you could actually expect the stock to open much better.Anuj: The other income has fallen about Rs 300-400 crore quarter-on-quarter (Q-o-Q). So, that is also actually a bit of positive as far as operational number is concerned because that would mean that beat that you are seeing in net profit is being driven by operation number. You wanted to make a point?Baliga: The petchem margins also have come out. It is 13.9 which is much better than what it was earlier.Anuj: Monday morning does Reliance go back to its highs or do you think like last few quarters there could be positivity in the morning but that would be used to sell?Baliga: No, I don't think it will be used to sell but at the same time I don't really see new highs because of these numbers possibly we could be up about 2-3 percent maximum four percent and it can possibly hold on in that range.