Customers stand in line in a Reliance Digital store, a subsidiary of Reliance Industries Ltd., in New Delhi, India. (Photographer: Anindito Mukherjee/Bloomberg)

Why RIL’s Shares Have Returned Best Two-Day Gains In 21 Months

Shares of Reliance Industries Ltd. jumped more than 8 percent in the last two trading sessions, the best rally in 21 months, as it beat estimates in a seasonally weak quarter and announced a plan to monetise its fibre optic and towers to pare debt.

India’s richest man Mukesh Ambani-controlled energy company’s standalone profit rose 0.8 percent over the previous three months to Rs 8,928 crore in the quarter ended December. That beat BloombergQuint’s estimate of Rs 8,665 crore, aided by better price realisation and higher volumes in its mainstay petrochemicals business.

Strong quarterly performance and expected monetisation of tower and fibre assets is leading the rally in RIL, Sudeep Anand, head of research at IDBI Capital, said. Lower debt will attract higher valuations for RIL’s standalone business, he said, adding that RIL is expected to dedicate 2019 to restructuring of balance sheet.

The petrochemicals segment performed better than expected and in oil and gas, RIL works as the best bet, Nitin Tiwari, oil and gas analyst at Antique Stock Broking, said. “The company has also successfully diversified its revenue stream which has overall helped their performance.”

Shares of RIL were trading 4 percent higher as of 1:45 p.m. today, continuing the rally that began after it announced its number after the market hours on Thursday. Its retail arm and telecom subsidiary also reported strong numbers, while its refining margin beat estimates.

  • Gross refining margin fell to $8.8 a barrel due to a fall in crude prices but was higher than the $8.3-per-barrel estimate.
  • Reliance Retail reported a more than threefold jump in earnings before interest and tax at Rs 1,512 crore, while its margin was at an all-time high of 4.25 percent.
  • Reliance Jio Infocomm Ltd.’s Ebitda margin expanded to 39 percent, while its average revenue per user was in line with estimates at Rs 130.
  • The company also said its telecom arm is open to sharing towers and fibre assets with other telecom operators. This move is expected to lower RIL’s Rs 1.7-lakh-crore debt by 33 percent, according to Edelweiss Securities.

Rising debt, a result of capital expenditure on refinery and Reliance Jio, had been an overhang for the parent.

Though the refining environment is challenging, the petcoke gasification plant which is expected to start in mid-2019 will boost its GRMs, according to Probal Sen, senior vice-president, research (oil & gas) at IDFC Securities.

Besides the petcoke gasification plant, IDBI Capital’s Anand said the company stands to gain from the International Maritime Organization’s new regulations mandating use of cleaner fuel. That’s expected to boost margins of refiners.

Sen said industry-leading margin reported by Reliance Jio has also worked in favour of RIL. The only concern that remains for RIL will be weaker refining environment and higher debt, some of which should be addressed with its monetisation plan, he said.