Reliance Industries Trades Lower As Other Income Drives Third Quarter Earnings

Reliance Industries Ltd. (RIL) was the biggest loser on the Nifty, falling as much as three percent in trade on Tuesday, despite maintaining the trend of beating analyst expectations in its quarterly earnings for the seventh straight quarter.

One of the reasons for the drop in share price can be attributed to the 33 percent jump in other income, compared to the previous quarter to come in at Rs 3,025 crore. This spike is largely on the back of profit made from its treasury holding.

Also Read: RIL Takes $6-Billion Writedown On Oil & Gas Assets Under New Accounting Standards

Devil Is In The Detail

RIL also reported its eighth consecutive quarter of double digit gross refining margin (GRM), which rose seven percent sequentially, to come in at $10.8 per barrel. This also helped the refining giant tide over a five-week maintenance shutdown at its Jamnagar plant, to report stable earnings before interest, tax and depreciation and amortisation (EBITDA) margin, which stayed largely flat at 16 percent, versus the previous quarter.

The premium over the Singapore benchmark fell 20 percent though to $4.1 per barrel, which is its lowest in three quarters for the company.

Update On Rel Jio

RIL’s total investment in its latest venture, the telecom business, now stands close to Rs 1,91,000 crore. The total debt on Reliance Jio Infocomm Ltd. now stands at around Rs 60,000 crore which translates to more than 31 percent of the group’s total debt. It was just 19 percent, nine months back, according to BloombergQuint’s calculations.

RIL has spent close to Rs 83,000 crore on capital expenditure in the first nine months of the current financial year, 62 percent of which was in the telecom business.

The company recently agreed to infuse Rs 30,000 crore in Rel Jio through a rights issue which will take the total equity infusion in the telecom venture to Rs 90,000 crore. The additional funds will be used to increase coverage over the next 15 months. On a standalone basis this will lead to RIL transferring cash from its profit making verticals – refining and petrochemicals, to the telecom unit, which will continue to offer free services till at least the end of financial year, 2017.

The true potential of these multi-billion-dollar investment plan is still unknown.

Retail Arm Strengthens

RIL’s retail business vertical saw its revenue grow 47 percent in the third quarter, compared to the same period last year. The retail arm’s revenue stood at Rs 8,688 crore, largely on the back of the company re-opening its retail fuel stations and sale of 2.8 million Lyf mobile phone handsets and accessories sold in the third quarter.

RIL has 1,151 fuel pumps operational of which 413 are owned and operated by company which added Rs 1,300 crore to its top-line. The company plans to start 500 own pumps by the end of financial year 2017.

Road Ahead

RIL’s refinery off-gas cracker (ROGC) projects will now be completed only by June 2017, which is delay of close to a quarter. The company expects partial production to now begin from September 2017.

RIL’s total consolidated debt as of December, 2016 stood at Rs 1,94,400 crore, seven percent higher than March 2016, while the cash and cash equivalent decreased 15 percent to Rs 76,400 crore.

The company which incurred a capital expenditure of Rs 38,000 crore in the third quarter to acquire additional spectrum for Rel Jio.

Most brokerages have maintained their view and target price on the company post the third quarter earnings.

RIL is the only stock, among 10 companies, in the BSE Oil and Gas Index that has no ‘sell’ rating. Around 77 percent of the analyst tracked by Bloomberg have a ‘buy’ rating on the stock, while the remaining 23 percent have a ‘hold’. The stock has an average return potential of 13 percent over the next 12-month, according to Bloomberg.