Why Dalal Street Remains Upbeat On Reliance Industries Despite Muted Q4

Most brokerages maintained their stance on Reliance Industries Ltd., after its quarterly profit matched their estimate as a strong performance in retail was offset by subdued refining, oil and gas and telecom businesses.

The company's net profit rose nearly 3 percent sequentially to Rs 8,697 crore, below Bloomberg consensus estimate of Rs 8,923 crore. RIL reported gross refining margins of $11 per barrel, which was also marginally below the analyst estimates of $11.2 per barrel and volumes fell six percent. Its telecom arm Reliance Jio Infocomm Ltd. reported moderate growth due to tariff cuts.

Brokerages expect the Mukesh Ambani-owned company to maintain its growth momentum going forward, with the commissioning of projects in the energy business and monetisation of Reliance Jio.

Here's what brokerages had to say on RIL:

Deutsche Bank

• Maintain Buy; hiked target price to Rs 1,180 from Rs 1,150; around 18.5 percent upside from the current levels.
• Commissioning of projects in its energy business and ramp-up of monetisation at Reliance Jio to maintain the outperformance, over the next six months.
• Expansions and robust downstream margins to drive annual Ebitda growth of 24 percent over FY18-20.
• Commissioning of petcoke gasifiers to boost refining margins.
• Reliance Jio indicated the imminent launch of fiber broadband business and continued focus on subscriber additions in mobile.

Edelweiss

• Maintain Buy; hiked target price to Rs 1,201 from Rs 1,174; nearly 21 percent higher than the current levels.
• Expect free cash flow to turnaround, return on equity to rise and profit to double in four years with commissioning of mega core projects.
• Refining earnings to revive with new projects.
• Retail segment targeting 30 percent annual revenue growth over next decade.
• Expect ARPU dilution in coming quarters on account of ramping of JioPhone and sustained competitive intensity.
• Expect Jio to be cost competitive and gain market share.

Motilal Oswal

• Maintain Buy, with target price of Rs 1,150.
• Fourth quarter net profit benefiting from higher other income and lower depreciation.
• Expect GRM to remain strong due to low utilisation in Latin America and Africa.
• Petrochemical deltas shown strength due to strong demand and delay in commissioning of new projects in the U.S.
• Stabilisation of the core projects to generate free cash flow.
• Expect accelerated revenue/Ebitda growth to drive strong market share gains for Reliance Jio.

Jefferies

• Retain under perform rating with a price target of Rs 790 amid “rich” valuations.
• Q4FY18 EPS 3 percent below estimates.
• FY18 earnings rose 21 percent and working capital helped cash flow again but $12.3 billion in capex still left net liabilities $4 billion higher at $38.3 billion.
• Expect liabilities to fall gradually even as “earnings uncertainties remain”.
• Wider gross refining margins, telecom revenue could pose risks to rating.

Goldman Sachs

• “Solid” finish to FY18; “best is yet to come”
• Petrochemical business was key driver of growth with 10 percent QoQ growth
• Refining margins missed forecasts. Offset by “strong” growth momentum in retail business, with EBITDA up 80 percent QoQ
• Jio revenues were in line with estimates, with higher subscribers offsetting lower ARPU

Nomura

• Remain positive on Reliance even after Ebitda miss.
• Overall numbers weren’t weak even as stand-alone Ebitda weaker than consensus expectations.
• Consolidated Ebitda/PAT to record 34 percent/27 percent CAGR over FY18-20.
• See company generating high free-cash flow soon as full benefits of refinery, petrochemicals expansion, R-Jio accrues and capex pace slows down.