Reliance Industries (RIL) met street estimates in its January-March quarter results fueled by stellar growth in Jio, retail and digital businesses. However, an exceptional loss of Rs 4,267 crore due to the fall in oil prices and demand destruction following the coronavirus outbreak capped profits.
Analysts are of the opinion that the stock may witness profit booking on Monday primarily due to a steep fall in equity markets as trade tensions between the US and China resurfaced.
SGX Nifty on Friday was down nearly 500 points whereas benchmark indices rallied nearly 8 percent last week.
Another reason for profit-taking could be the sharp rally seen in Reliance share price recently. The stock shot up 67.5 percent since March 23 to Rs 1,467.05 on April 30 amid growth in the telecom business and Jio-Facebook deal.
"Reliance has rallied more than 60 percent, it could see some sell-off in a couple of weeks due to weak global cues, but that will be a buy or there will be a good time to buy at Rs 1,257, the rights issue price," Prakash Diwan of Altamount Capital Management told CNBC-TV18.
Prashanth Tapse, AVP Research at Mehta Equities also feels technically RIL may see an attempt of profit booking at the current levels as it has seen a rally from Rs 875.65 (March 23) and Thursday's close Rs 1,467.05 (April 30).
But experts maintained a positive stance on the stock given the expected growth in the new-age business of Jio and Retail which are yet to be factored in.
They see tremendous growth in RIL after Q4 FY20 and Q1 FY21, once the lockdown induced pain is soothed.
According to them, there are multiple moats for the company such as the expected growth in consumer businesses, ongoing due diligence with Saudi Aramco, expected hiving off oil-to-chemical (O2C) business, another Facebook-like deal in Jio Platforms. They also expect RIL to become net debt-free ahead of schedule which could drive market capitalisation of the business back above Rs 10 lakh crore soon.
"We still have Saudi Aramco deal on track, so it is a very different premium attached to optionality on the stock. Though there was a disappointment on the pricing of the rights issue, the stock will definitely come back as the new-age businesses will start getting pencilled in," Prakash Diwan said.
"Reliance is not extremely expensive even at Rs 1,400 plus level given the kind of projections of the new-age business of Jio and Retail. O2C may get Rs 3.5 lakh crore of valuations then the stock could cross magical Rs 10 lakh crore market cap again," he added.
SP Tulsian of sptulsian.com also said, "I don't think Q4 numbers or EPS estimates for FY21 are relevant at this point of time. Saudi Aramco due diligence is on track which gives certainty that deal is going to happen."
"The company will be moving before NCLT for hiving off O2C business and its commitment to raising Rs 1 lakh crore by Q1 FY21. Hence, if we add cash flow of Rs 40,000-50,000 crore for FY21, the company will be able to achieve the target of making it debt-free on a net of cash basis, because the net debt as of March 31 FY20 is Rs 1.61 lakh crore," he added.
He too was disappointed with the rights issue pricing but said that the fall in topline, EBITDA and EBIT of Reliance Retail given the lockdown was not disappointing.
The company reported gross refining margin at $8.9 a barrel, which was much ahead of street estimates of $7.2-8.0 a barrel. GRM in Q3 FY20 was at $9.2 a barrel.
Reliance Jio reported a healthy 72.7 percent sequential (177 percent YoY) increase in profit at Rs 2,331 crore with 387.5 million subscribers as of March 2020 against 370 million in the previous quarter, while average revenue per user increased to Rs 130.60 from Rs 128 crore QoQ.
"GRM at $8.9 a barrel is out of the box and far better than expectations. Jio ARPU is a tad lower as we were expecting at Rs 135, but incrementally they also added subscribers, tweak in data pack which will have a strong impact on current quarter's earnings (Q1FY21)," Prakash Diwan said.
The company announced India's biggest rights issue of Rs 53,125 crore, in the ratio of 1 equity share for every 15 equity shares held by shareholders, at a price of Rs 1,257 per share against Thursday's closing of Rs 1,467.05 per share. The proposed rights issue would be the first by RIL in three decades.
"The rights issue is a step towards the company's target of becoming a zero-net debt company by end of current fiscal. Promoters are expected to fully subscribe to the rights issues which will instil confidence in investors mind about promoters commitment to the business in addition to improving the balance sheet strength. We believe investors should take this positively," Ashish Chaturmohta, Head of Technical and Derivatives, Sanctum Wealth Management told Moneycontrol.
Vikas Jain, Senior Research Analyst at Reliance Securities said the rights issue would enable shareholders to increase the holdings at a lower price compared to Thursday's closing of Rs 1,467 per share.
Reliance Industries is expected to complete the capital raising programme totalling over Rs 1.04 lakh crore by Q1FY21, which includes the investment by Facebook in Jio Platforms, the upcoming rights issue and the previous investment by British Petroleum in FY20.
In addition to the Facebook investment, "RIL has received strong interest from other strategic and financial investors and is in good shape to announce a similar-sized investment in the coming months," said the company.
With strong visibility to these equity infusions, RIL is set to achieve net-zero debt status ahead of its own aggressive timeline.
Mukesh Ambani in his AGM speech in August last year said, "We have a very clear roadmap to becoming a zero net debt company within the next 18 months that is by March 31, 2021."
While maintaining a buy call with a target at Rs 1,601, Prabhudas Lilladher said it tweaked estimates for FY21/22 as it believes RIL is well placed to capitalize on growth opportunities in the digital and retail space.
"Fundraising plans of Rs 1 lakh crore will help RIL to tide over the tough post-COVID-19 pandemic situation, especially in the hydrocarbons business," the brokerage added.
Motilal Oswal also maintained buy call on the stock and said, "RIL's Q4 FY20 consolidated and standalone EBITDA was in line with our estimates."
The brokerage valued the stock at Rs 1,618 per share (from earlier Rs 1,589), based on SOTP with equity values of Rs 358 per share for the core business, Rs 500 (earlier Rs 450) for Retail and Rs 760 (earlier Rs 750) for Jio.
"We value the core segment of Refining and Petrochem at 6.0x FY22E EV/EBITDA, factoring in the enhanced delayed coker capacity, the widening of crude blend window for maximizing distillate yields prior to the IMO and the revival in Petchem margins for the company under its flexible feedstock utilization," the brokerage said.
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