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Published on 20/01/2020 12:14:38 PM | Source: Live Mint

RIL wipes gains, down 2% as some verticals disappoint

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Shares of Reliance Industries Ltd on Monday erased all gains made earlier in the day and fell over 2%, its steepest fall in two weeks, after the company reported weaker-than-expected performance in its refining, petrochemicals and telecom businesses in the December quarter.

At 10.35am, the stock was down 2%, its maximum fall since 6 January to hit a low of ₹1550 a share. So far this year, it has gained 3%.

Analysts were also worried over the delay in the Saudi Aramco deal, in which RIL intends to sell 20% stake, after the company said the deal will not be done by this fiscal end and did not given any timeline to complete the transaction.

Last month, the Delhi High Court asked RIL to disclose assets on the government's plea for direction not to dispose of their assets as they have allegedly failed to pay it $4 billion as per an arbitral award in favour of the Centre in relation to the Panna-Mukta and Tapti (PMT) production-sharing contracts.

RIL reported lower-than-expected standalone EBITDA at Rs12,871 crore in October-December as petrochemical EBIT margins missed estimates and came in at 16.1% (down 151 bps y-o-y; down 392 bps q-o-q) and a marginally weaker-than-expected GRM at $9.2 per barrel.

"The weakness was driven by tepid demand and new capacity additions in both aromatic and polymer chains, and firmer feedstock naphtha/ethane prices. Near-term outlook appears weak for both polymer (new US crackers and export terminal) and aromatics chains (new PX capacity in China, PTA capacity overhang)," said Nomura Research in a note to its investors.

Telecom arm Reliance Jio’s EBITDA of ₹5600 crore (up 9% quarter on quarter ) was 8% below Nomura Research’s estimates driven by lower subs and lower comparable ARPU. Reported PAT of ₹1350 crore (up 36% q-q) was impacted by ₹180 crore of AGR (adjusted gross revenue) provisions after a recent Supreme Court judgement, but was boosted by the adoption of a lower corporate tax rate. ARPU was at ₹128 against ₹127 in the second quarter.

"We expect Reliance Jio’s revenue market share to improve, backed by better ARPUs and subscriber additions, given the expectation of consolidation in telecom space post the AGR ruling by Supreme Court. Additionally, the company’s unique online-offline retailing strategy would aid growth and drive margins of the retail business," said Sharekhan, in a note to its investors.

RIL's retail segment continues to surprise with strong volume growth in core retail, clocking a 17% q-o-q growth in its EBITDA of Rs. 2,727 crore.

"RIL's performance was operationally muted across segments except retail, which sustained strong growth momentum. FCF (free cash flow) turned positive after seven years led by an accelerated decline in capex. We reiterate BUY with a revised FV (future value) of Rs1,850 notwithstanding a bleak downstream outlook, as the company may benefit meaningfully from plausible consolidation in telecom, culmination of key transactions, rising free cash flow trajectory and sustained growth in the retail segment," said Kotak Institutional Equities in a 19 January note.

Brokerage firm Elara has downgraded the stock to accumulate from buy and cut its target price to ₹1767 from ₹1790 a share.