Mumbai: Shares of Reliance Industries (RIL) plunged as much as 6.5% Friday despite the company posting its highest ever net profit for the September quarter, as some analysts raised concerns overs low gross refining margins (GRMs) and a delay in a key refining project.
The stock fell to Rs 1,073.15 intraday on the BSE before ending at Rs 1,101.65, or 4.11% lower from the previous close, eroding nearly Rs 30,000 crore of investor wealth.
“The reaction in RIL stock price could be attributable to lower GRMs and continued high capex intensity,” said Abhijeet Bora, an analyst at Sharekhan. “Nevertheless, we remain optimistic about core refining and petrochemical margins led by ramp-up of recently commissioned downstream projects and expect sustained improvement in the financials of the digital services business.”
RILs GRMs fell to a two-quarter low of $9.50 per barrel, compared with $10.50 in the previous quarter and $12 in the July-September period last year. RILs September-quarter result was in line with expectations. Its strong petrochemical performance was weakened partially by lower refinery profits. Further, rupee depreciation and lower treasury profits took a toll on interest expenses and other income.
Consolidated capital expenditure remained high at Rs 39,000 crore in the second quarter. Of this, Rs 16,000 crore was towards Reliance Jio Infocomm and Rs 13,000 crore for RIL standalone. The company also announced an investment of Rs 5,230 crore to acquire a 66.5% stake in Den Networks and 51% of Hathway Cable by subscribing to preferential shares, as part of its efforts to accelerate Jios GigaFiber home broadband business.
Some analysts raised concern over RILs elevated capex.
“We would wait for stabilisation of capex at lower level and growth trajectory of Jio before assigning it a higher valuation,” said IDBI Capital analyst Sudeep Anand. “We expect significant monetisation of the GigaFiber business may take longer than expected time due to last-mile connectivity issues while pricing pressure in the mobility business may keep ARPU at a lower level in the near term”.
Some investors were concerned by the delay in its $5 billion petcoke gasification project. The delay, according to analysts, is an indication of pressure on refining earnings in the forthcoming quarters. “We reiterate sell given our concerns on persisting high capex, non-contributing capital work in progress and rising debt levels, all of which constrain a sustainable improvement in return ratios and free cash flows in the medium term,” said Tarun Lakhotia of Kotak Securities.“The recent deterioration in refining and petchem margins may compound woes in the near term.”
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