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Reliance Industries Slips As Investors Weigh Q2 Earnings

Reliance Industries Telecom arm - Reliance Jio reported earnings for the first time.



 Shareholders watch a television broadcasting Mukesh Ambani, chairman and managing director of Reliance Industries Ltd., (Photographer: Prashanth Vishwanathan/Bloomberg News)
Shareholders watch a television broadcasting Mukesh Ambani, chairman and managing director of Reliance Industries Ltd., (Photographer: Prashanth Vishwanathan/Bloomberg News)

Shares of Reliance Industries Ltd. fell as much as 1.7 percent after making setting a record. The company on Friday posted profit that missed estimates but analysts raised their profit projections because of the performance of its telecom unit Jio.

Here’s what brokerages had to say about Reliance Industries:

CLSA

  • Stocks Rating: Maintain ‘Buy’
  • Target Price: Hiked to Rs 1,080 from Rs 1,050
  • Big beat in Reliance Jio’s revenues driven by much higher-than-expected paying subscribers
  • Reliance Jio turns earnings before interest and tax positive in the very first quarter
  • Expect Reliance Jio to be profit making from first year
  • Off-gas cracker and gasification should be at full utilisation in FY19, while net debt is nearing its peak
  • Expect earnings per share for FY18, FY19 and FY20 to rise by 25 percent, 16 percent and 12 percent, respectively
  • Supply of Jio phone should stabilise soon and this may be the next big trigger for the stock`

JP Morgan

  • Stocks Rating: Maintain ‘Neutral’
  • Target Price: Hiked to Rs 820 from Rs 730
  • Petrochemical offsets sluggish refining
  • Core business should remain strong given the refining and petrochemical environment, and core projects ramping up
  • Reliance Jio benefited from revenue booking of the first quarter, capitalisation of some expenses and lower depreciation and interests
  • The overall net debt reduction would be a function of Reliance Jio’s Ebitda increase, which would primarily depend on how quickly average revenue per user increases from current levels of Rs 156
  • Increase our FY18-20 EPS estimates by 6-13 percent on lower capital costs and higher Ebitda primarily in Reliance Jio
  • Upside risks include a further pick-up in refining and petrochemical spreads and a sharp-pick up in telecom ARPU
  • Downside risks include delays in gasifiers, a decline in PE-Naphtha and telecom ARPU remain weak, limiting net debt reduction

Edelweiss

  • Stocks Rating: Maintain ‘Buy’
  • Target Price: Hiked to Rs 1,104 from Rs 1,009
  • Q2FY18 surprised positively yet again, spurred by Reliance Jio’s robust debut
  • Reliance Jio’s strong operating competitiveness and healthy consumer traction further enhances our conviction on Reliance Industries
  • GRM disappointed amid adverse movement in crude spreads
  • Petrochemicals maintained strong momentum driven by healthy polyester and polyvinyl chloride spreads and benefits from downstream core projects

Motilal Oswal

  • Stocks Rating: Upgraded to ‘Buy’ from ‘Neutral’
  • Target Price: Hiked to Rs 1,005 from Rs 941
  • Expect company to clock GRMs of $11.5/bbl led by strong risk management, better yield management and crude optimization
  • Commissioning of downstream units of ROGC would boost the petchem performance further
  • We believe, commissioning of grandiose $20 billion core projects is likely to bolster Reliance Industries’ earnings, boost RoE and turnaround free cash flow
  • We believe that if recharges from both Q1FY18 and Q2FY18 were accounted on an accrual basis, ARPU would have been about Rs 130 for the quarter
  • We expect addition of 4.2 crore subscribers, taking the overall subscriber base to 18.1 crore by March 2018 and 20.5 crore by March 2019, from 13.9 crore in Q2FY18, with ARPU estimates of Rs 156 and Rs 172 in FY18 and FY19, respectively

Kotak Institutional Equities

  • Stocks Rating: Maintain ‘Reduce’
  • Target Price: Hiked to Rs 835 from Rs 785
  • Q2FY18 were ahead of our estimates despite weaker-than-expected refining margins and higher tax rate, reflecting significantly lower-accounted-than-expected loss from Reliance Jio
  • Apportionment of revenues, capitalisation of operating/interest costs and adoption of UOP method for D&A, help Reliance Jio report a positive EBIT
  • Q2FY18 margins had surprised us positively with a premium of $5.5/bbl
  • We raise our FY18-20 consolidated EPS estimates to Rs 54 (+13 percent), Rs 60 (+13 percent) and Rs 66 (+9 percent) to factor revision in Reliance Jio’s model for accounting policies, 2-5 percent reduction in standalone EPS due to higher interest cost and tax rate, and other minor changes

IDBI Capital

  • Stocks Rating: ‘Buy’ from ‘Accumulate’
  • Target Price: Hiked to Rs 1,004 from Rs 875
  • Expect GRM of $11/bbl for H2FY18 & FY19
  • Reliance Jio surprised with positive EBIT in Q2, driven by higher ARPU owing to one-time conversion and higher subscriber base
  • Company to revise tariff plan and Q3 ARPU may not fall on QoQ basis
  • Capital expenditure for Reliance Jio may rise in H2FY18, and major capex likely to be done in FY18
  • Raised EPS estimates by 6 percent for FY18/19 on the back of strong petrochemical performance