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Reliance Jio, Retail likely to be strong in Q3; petchem could see some pressure

Edelweiss expects Jio to add 30 million subscribers during the quarter, and a 2.6 percent jump in ARPUs.

January 20, 2020 / 05:27 PM IST

Oil-telecom-and-retail major Reliance Industries is expected to continue to report robust growth in consumer segment, telecom and retail arms, with steady refining business, but petchem is likely to be under pressure due to reduced margin for the quarter ended December 2019.

Overall, consolidated revenue for the quarter could be higher by 2-7 percent sequentially, but profit and operating income may be flat to moderately high as strong telecom and retail segments could be offset by weaker petchem business.

Brokerages expect Q3 gross refining margins (GRM), which are closely watched by the Street, at around $9-10 per barrel against $9.4 a barrel reported in the September quarter, which may support standalone earnings but could be offset by weak petchem margin.

Motilal Oswal expects GRM at around $9 a barrel, with a huge premium of $7.3 a barrel to Singapore GRM, while Kotak Institutional Equities expects the GRM at $10.5 a barrel on the higher side for the quarter.

Singapore GRM averaged at around $1.6-1.7 per barrel for Q3FY19, primarily due to worsening of FO (fuel oil) cracks and failure in revival of diesel cracks. This is the lowest quarterly GRM average in the last 15 years.


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In Q3FY20, average Brent prices stood at $62.5 per barrel, marginally higher than the average price of $61.9 a barrel in Q2FY20, resulting in inventory gains for refiners based on their different inventory cycles, Motilal Oswal said.

Kotak Institutional Equities expect standalone EBITDA to increase QoQ led by higher refining margins at $10.5 a barrel and crude throughput, which will be partly offset by sharp moderation in overall petchem margins.

But all eyes will remain on consumer businesses - telecom and retail - as CMD, Mukesh Ambani in the last annual general meeting had said these segments would be key drivers in coming years.

The tariff hike since December and consistent addition of subscribers are expected to support Jio, which could report higher average revenue per user (ARPU) while retail business could continue to surprise with growth.

"Consolidated EBITDA will be further boosted by increase in contribution from (1) Jio (up Rs 900 crore QoQ) amid rising subscriber base and higher ARPUs and (2) retail segment amid sustained growth in revenues," said Kotak Institutional Equities.

"In the wake of Reliance Jio's discounted offering of Jiophone at a cut-throat Rs 699, we are building in a flat subscriber base for Bharti and a 5.7 million decline in subscriber base for Idea. We expect Jio's revenue to jump 12.6 percent QoQ bolstered by higher Jiophone sales, recovery of IUC charges and price hikes," said Edelweiss.

The brokerage expects Jio to add 30 million subscribers during the quarter, and a 2.6 percent jump in ARPUs.

For Reliance Retail, the management expects to sustain same-store-sales growth at around 20 percent in FY20. It is currently present in over 7,000 cities and towns.

Key things to watch out for would be commentary on number of subscriber addition due to impact of ARPU changes, closure of Aramco deal as a part of debt reduction strategy and IPO plans for retail business.

The stock gained 13.6 percent during third quarter and rallied 36 percent in last one year amid asset monetisation news and strong growth in telecom business.

While maintaining overweight call on the stock with a target of Rs 1,753 (implying 14 percent potential upside from current levels), Morgan Stanley in its latest report said it has highlighted RIL's valuation versus the market, compared to its earlier cycles of balance sheet leveraging and deleveraging, along with relative valuation versus global peers.

It also highlighted the recent trends in ownership and consensus estimates following last quarter's earnings.

RIL's relative discount to the market is heading towards its historical long-term average on the basis of both P/B and P/E:


RIL's ROCE is at par with the market (ex-financials) returns; ROE underperformance has marginally narrowed:


RIL's valuation versus peers and RoCE through cycles:


Consensus expectations are moving upwards:


Ownership (foreign and domestic institutional holdings) trends:


Disclaimer: The above report is compiled from information available on public platforms. advises users to check with certified experts before taking any investment decisions.

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Moneycontrol News
first published: Jan 17, 2020 09:54 am
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