RIL's Q2 performance: Here's what experts feel

Below is the verbatim transcript of the interview..

Anuj: Where is this USD 10.6 coming from. In an environment where the Singapore Gross Refining Margin (GRM) was down so much and there were concerns that the last quarter performance was maybe peak performance for Reliance?

Shenoy: Yes, in fact I am surprised it kind of lifts my hope for a number of other petrochem players as well. USD 10.6 is one of the highest numbers I can see in the last maybe - in fact this is the highest number in the last 14 quarters as far as I have numbers for. It is a pretty strong number and you are talking dollars per barrel, in rupees it is obviously even higher. So, I haven't been able to go through all the numbers in detail. We haven't seen the detail, we haven't seen that, but I like the USD 10.6, but obviously they have done a lot of official efficiencies here.

Anuj: The big question then. Come Monday morning can Reliance take the leadership position and take the market higher? Do you get a sense that we are going to see that? This was a question we asked last quarter as well but last quarter clearly the market itself turned around but do you think Reliance can take over that leadership mantle now?

Shenoy: Reliance actually the stock doesn't seem to do well when they have good results. In that context I don't see the stock - people are a little tired of it. So, Rs 1,000-1,050 would still according to me be just about the same high we saw like seven years ago. So, at this point it is even less. The real high was about Rs 1,500 if I remember high. So, in that context unless it actually breaks out of that zone I don't see this as a tremendous bullish story but I could be surprised, I think the stock is not going to react too much on Monday.

Latha: I want to ask you what you what you made of the numbers and the GRM.

Joshi: Clear beat, exceptional set of numbers both on the refining and the petro-chemical side. Specifically on the GRMs, a USD 4.3 beat because Singapore GRMs are hovering close to that USD 6.3 mark. USD 10.6 is an exceptional number, so again, one really needs to understand because gasoline cracks were down, North American Free Trade Agreement (NAFTA) cracks were down, the LPG end product prices were actually down. So, one really needs to understand from management commentary where the GRM beat is coming from. And even on the petro-chemical side, at least our numbers suggested much lower numbers on the earnings before interest and taxes (EBIT) front. So, even that has been a beat in terms of how the operational performance has gone through. So, in my opinion, a great set of operational numbers by Reliance.

Latha: Your stock price targets, will they require revision?

Joshi: Clearly, we need to hear from the management whether the sustainability is there because even in the last quarter, we are speaking where the 10.4 was sustainable. They have actually beaten that this quarter around. And if one really assumes Singapore GRMs to stay in that range of 6.5-7.5, assumably, Reliance trades at a premium anywhere between USD 2.1-2.3 per barrel. So, Reliance GRM should ideally pan out anywhere out anywhere between 8.5-9.5. Having said that, the target price of Rs 1,050 still stays intact. We might revise numbers once we hear the management commentary in greater detail.

Anuj: Where does this number come in from?

Jain: Even I am surprised. Very strong set of outperformance across the key segments of refining and petro-chemicals, both have delivered better than estimates earnings before interest, taxes, depreciation and amortization (EBITDA) performance. If I particularly cite, the refining EBIT is substantially ahead of what we were expecting. We were expecting it to be around that Rs 4,300-4,400 odd. And it has come substantially ahead of that. So, it is a pretty strong set of numbers. We will have to see as to how have they delivered it.

Latha: Anuj was guessing that it probably is entirely a margin story. Would that be largely it? The gross refining margins being much better than expected?

Jain: If you actually look at the last couple of quarters’ performance for Reliance, they have beating the industry by a substantial margin. So, in that sense, this again, is a quarter where they have delivered better than industry performance. So, again, it has to do with GRM.