INSUBCONTINENT EXCLUSIVE:
ET Intelligence Group: Reliance Industries, India’s largest private sector by profit, is likely to outperform given its core business
segment—refining and petrochemical— stayed steady for the September quarter meeting street expectations while robust growth of the
consumer-facing business—retail and RJio— would boost the stock.
In the September quarter, the operating profit share of the consumer
business jumped to 20 per cent of the total consolidated profit from just 4.8 per cent in the same quarter last year
Furthermore, the acquisition of the controlling stake in the Hathway and DEN Networks will help the tap the sizeable untapped broadband
market.
This could help boost the valuation of the RJio
RIL’s stock has outperformed the benchmark Sensex by 9 per cent in the past three months in choppy trade
Based on the September quarter results, the earnings estimate and ascribed valuation multiple for the retail business is likely to be
This could lift the consensus target price for RIL.
In its core business, the softness in the Singapore refining margin—a gauge of
regional refining margin—has been reflected in the company’s refining margin, which was at $6.0 per barrel in September quarter.
The
gross refining margin—the difference between crude oil cost and average selling price of refining products—dropped to $9.5 per barrel in
the September quarter from $10.5 in the previous quarter due to the adverse light-heavy crude differential, lower product realisation and
shutdown of one unit.
The premium of RIL’s GRM to the Singapore refining margin dropped $3.4 per barrel from an average premium of $4-4.5
Despite the fall in the GRM, operating profit of the refining segment grew 0.1 per cent to Rs 5,322 crore on a sequential basis thanks to
higher throughput rising 7 per cent Q-o-Q to 17.7 mmt.
The higher feedstock prices and lower realisation in some petrochemical products
lowered profitability of the petrochemical segment and operating profit margin dropped 70 basis points on a sequential basis to 18.8 per
With record absolute operating profit in the September quarter, the share of the petrochemical segment to the total operating was nearly 50
per cent.
There are ample growth triggers for earnings growth of the refining and petrochemical segment
RIL’s GRM is likely to improve on higher utilisation of pet coke gasification project which could potentially increase by $2-2.5 per
barrel if crude prices continue to remain elevated
New International Marine Organisation rule for cleaner fuel could also improve realisation for the complex refiner.
Margins of the
petrochemical segment margin were impacted due to rising prices of ethane in the international market
However, RIL has hedged an undisclosed quantum of ethane purchases up to December 2020.
The retail business revenue grew 25 per cent
sequentially and 121 per cent on a yearly basis surprising the street
This is triple-digit growth on YoY basis for the fourth quarter running.
In the first half of the FY19, the total revenue of retail business
revenue reached Rs 58,326 crore and if the company maintains the current quarterly rate in the remaining of the two quarters of the current
fiscal revenue may cross Rs 1 lakh crore
The street is pencilling in revenue of Rs 1 lakh crore for the next fiscal year
The street is valuing retail business for Rs 140-160 per share and valuation multiples are lower than its peers.
In the September quarter,
RJio added 37 million subscribers compared with 28.7 million in the previous quarter and average revenue per user dropped to Rs 131.7 from
Rs 135.
The trend is likely to continue as strategy precedence of customer acquisition over the margins will likely stay till it reaches
critical mass in the subscriber and revenue market share
The controlling stake in cable operator for the fourth quarter for the fourth quarter and Den Network will support the penetration of the
JioFibre—fibre-based broadband service
Hathway and Den Networks offer broadband services with nearly 6.5m homes and a combined broadbSubscriber base of 0.9m.
