Mukesh D. Ambani, chairman of Reliance Industries Ltd., speaks at the Ajay Mushran Memorial Lecture in New Delhi, India (Photographer: Pankaj Nangia/Bloomberg)

RIL Hits Record High After Brokerages More Confident On Outlook

Reliance Industries Ltd. rose as much as 2.5 percent to Rs 1,157.55, a record high for the stock, after its quarterly profit beat made most brokerages more confident on the oil and gas major’s overall outlook.

“The transition in profitability to a new norm was well evident in the earnings – most businesses showed good step-ups in margins,” Morgan Stanley analysts led by Mayank Maheshwari wrote in a note.

RIL net profit rose 1.4 percent to Rs 8,820 crore, above Bloomberg consensus estimate of Rs 8,525 crore. It reported gross refining margins of $10.5 per barrel, matching forecast. The company expects consumption growth for middle distillates like diesel and jet fuel to remain strong on the back of pick up in industrial demand and change in IMO fuel specifications, according to a company presentation.

Here's what brokerages had to say on RIL:

Goldman Sachs

  • Maintains ‘Buy’, raises price target to Rs 1,405 from Rs 1,340
  • Investors will start assigning higher earnings estimates and valuations to petrochemical business, which is now the largest earnings contributor
  • Growth in petrochemicals to continue amid higher volumes, expansion and feed diversification
  • Gross refining margins, and Jio’s revenue per user beat estimates
  • Consumer business Ebitda may grow four 4 times over next three years

Morgan Stanley

  • Maintains ‘Overweight’, cuts price target to Rs 1,230 from Rs 1,241
  • Earnings may grow at compounded rate of 15 percent over FY19-21
  • Operating profit may rise further in chemicals business, while refining has "robust outlook"
  • Return on capital employed should rise by 150 bps to 14.5 percent by FY21
  • Cuts FY19-21 earnings estimates 2-6 percent on higher than expected capital expenditure

Jefferies

  • Maintains ‘Underperform’, raises price target to Rs 880 from Rs 850
  • Raises FY19-23 estimates for Ebitda by ~4 percent and for earnings by ~1.5 percent
  • Ebitda may take center-stage today but focus may return to free cash flows amidst uncertainty in refining and telecom
  • Q1 capex higher-than-expected; valuations remain "rich"

Emkay

  • Upgraded to ‘Buy’ from ‘Hold’; raised target price to Rs 1,300 from Rs 965.
  • Stellar petrochemical performance; Reliance Jio, retail growth intact.
  • Believe that first quarter earnings before interest, tax, depreciation and amortisation run-rate in petrochemical business is a new normal.
  • International Maritime Organisation norms from calendar year 2020 could lift GRMs materially.

CLSA

  • Maintained ‘Buy; raised target price to Rs 1,365 from Rs 1,230.
  • Performance of all key segments notably ahead of estimates.
  • Big ramp-up in subscriber additions and doubling of Ebitda over FY18-21 are key triggers.
  • High Jio capital expenditure and unclear commentary on petcoke project is a dampener.

Edelweiss

  • Maintained ‘Buy’; raised target price to Rs 1,457 from Rs 1,201.
  • Another robust petrochemical show; Gasifier stabilization underway.
  • Jio – Surprisingly steady ARPUs; Retail - revenue & margins surge.
  • With commissioning of mega core projects, expect FCF to turnaround.
  • At current price, stock trades at an undemanding.

Motilal Oswal

  • Maintained ‘Buy’; raised target price to Rs 1,301 from Rs 1,211.
  • Petrochemical drives standalone profitability; Jio surprises again.
  • Consolidated Ebitda exceeded estimates on the back of Jio and retail operational performance.
  • Positively surprised by Jio’s stellar ARPU despite aggressive pricing.

Nomura

  • Maintained ‘Buy’ with target price of Rs 1,220.
  • Strong Q1 results – petrochemical/Jio/Retail gets better; Refining in line
  • Jio continues to surprise with strong numbers.
  • Expect consolidated Ebitda/net profit to grow at a CAGR of 34 percent/27 percent over FY18-20.
  • Expect pace of capex to slow in coming quarters.

IDBI Capital

  • Downgrade to Accumulate from ‘Buy’; raised target price to Rs 1,200 from Rs 1,150.
  • Robust petrochemical boosted growth; retail, Jio saw significant growth.
  • Higher tax rate, and depletion, depreciation and amortization expenses led to in-line PAT despite strong beat at Ebitda level.
  • Downgrade due to recent run-up in stock valuation.