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    Telecom, retail, GRM may give RIL a lift

    Synopsis

    The stock is trading at 15.05 times its one-year forward earnings.

    ET Bureau
    ET Intelligence Group: The Reliance stock is poised for gains after India’s most valuable company beat profitability estimates in the June quarter, extending its run of positive earnings surprises achieved through bigger contributions from consumer-facing businesses. As the Mumbai-based powerhouse beat consensus profit estimates for the 14th time in the past 18 quarters (according to Bloomberg data), the share of consumer facing businesses in Reliance’s operating profit (Ebit) rose to 28 per cent from 17.5 per cent in the same quarter last year.

    Operating profit of the telecom arm Jio beat Street estimates by a wide margin. The Street was expecting Ebitda of Rs 3,300-3,700 crore due to asset transfer to InVITS in the June quarter. However, actual Ebitda stood at Rs 4,686 crore, which implies margin of 40.12 per cent, the highest in past five quarters. Average revenue per user, or ARPU, was at Rs 122 compared with Rs 126.2 in the previous quarter.

    Similarly, the conglomerate’s retail business, which sells everything from green grocery to top-end television sets, didn’t show signs of consumption fatigue noted in several other pockets of the economy. The retail division witnessed 47.5 per cent revenue growth in the June quarter, in which the total operated area climbed 23.6 per cent year-on-year to 23 million square feet.

    Sustainable outperformance for the stock in the near term will hinge on the direction of gross refining margins, or GRM – the total value of petroleum products from a refinery minus the price of crude oil. The stock has moved sideways since the March quarter earnings on weak regional benchmark refining margins and lower petrochemical product prices.

    June-quarter GRM dropped $0.1 per barrel on a sequential basis to $8.1, the lowest in at least 18 quarters. The Singapore refining margin—a gauge of regional refining margins—rose $0.3 per barrel to $3.5 in the same period. Consequently, Reliance’s premium to Singapore GRM reduced to $4.6 per barrel in the June quarter against $5 in the previous quarter.

    Refining margins remained muted due to lower realization on diesel, which accounts for more than 40 per cent of the total product range at Reliance. The Street expects improvement in GRM from the second quarter of the current fiscal on expectations that crude differential would normalize. Diesel realization is also expected to improve on implementation of new fuel norms for ships by the International Maritime Organization (IMO).

    From next year, ships will be propelled by fuel that will have sulphur content less than 0.5 per cent against the current limit of 3.5 per cent. For lower-sulphur fuel, ships could start using blended diesel, and this could lift the crack spread. The Street is pricing in $11and $12.5 as GRMs, respectively, for the current and next fiscal years.

    In the petrochemical business, operating profit margin stood at 19.9 per cent in the June quarter, surpassing the previous high of 19.5 per cent in the same quarter last fiscal.

    The Street had anticipated a decline in operating profit by 10-14 per cent on lower absolute volumes, but the fall was limited to 4.4 per cent in the June quarter.

    The stock is trading at 15.05 times its one-year forward earnings, compared with the 10-year average of 12.7.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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