Morgan Stanley has an overweight rating on Reliance and sees torque from an upcycle supporting earnings, which lagged peers by nearly 36% over the past year
Shares of Reliance Industries (RIL) fell as much as 2.54% on Monday despite posting a 108% year-on-year (y-o-y) rise in profit after tax (PAT) for the fourth quarter of FY21 at Rs13,227 crore against Rs6,348 crore for the same quarter last year.
At 3.20 pm, Reliance was trading at Rs1,956.85 down 1.89% from its previous close, while the benchmark index, Sensex lost 0.14% to 48,715.30
Revenue from operations rose 11% y-o-y to Rs1.54 trillion during the quarter compared with ₹1.39 trillion in the year-ago period. The increase in revenue was primarily due to higher volumes in transportation fuels and better price realization across O2C segment. The robust performance by retail segment across all formats also added to growth in revenue.
Earnings before interest, tax, depreciation, and amortization (Ebitda) rose 1.9% quarter-on-quarter (q-o-q) and it advanced 2.77% y-o-y to Rs26,602 crore in March 2021 quarter over Rs25,886 crore for the corresponding quarter of previous fiscal. The sequential improvement was primarily due to improvement in O2C and retail businesses.
The telecom arm of RIL, Reliance Jio, witnessed a 47.5% y-o-y growth in net profit at Rs3,508 crore in the fourth quarter. The consolidated revenue from operations grew nearly 19% to Rs18,278 crore against Rs15,373 crore y-o-y. Jio posted a total average revenue per customer (Arpu) during the quarter of Rs138.20 per subscriber per month while customer base as on 31 March 2021 stood at 426.2 million.
Morgan Stanley has an overweight rating on Reliance and sees torque from an upcycle supporting earnings, which lagged peers by nearly 36% over the past year. The brokerage forecasts upside to street estimates for FY22/FY23, supported by a supply slowdown in chemicals and refining, a rise in gas production and subscriber net adds; it raises petrochemical margin assumptions, but lower retail revenue forecasts to factor in the impact of the recent lockdowns in India. The brokerage also sees a slower path for rising Arpu and hence push it out to FY23.
Overall, it lowered FY22 earnings by 7%, however, a 23% Compound Annual Growth Rate (CAGR) from pre-covid profitability as the upcycle plays out across businesses.
For Reliance Retail, net profit for the quarter was ₹2,247 crore higher by 45% y-o-y. Gross revenue at Rs47,064 crore, grew 24% q-o-q and 23% y-o-y and Ebitda at Rs3,617 crore, was up 17% q-o-q and 41% y-o-y.
O2C segment revenues for March quarter increased by 20.6% q-o-q to Rs1.01 trillion primarily on account of higher realization across product portfolios and higher volumes. Higher realization was led by strong average Brent crude price, mainly due to weather-related supply disruption and continued supply cuts by OPEC plus.
Analysts at HDFC Securities have given add rating on Reliance. It is premised on the induction of Facebook, Google, Intel and Qualcomm as partners on Jio Platforms, which helped the company accelerate the growth of digital connectivity and create value in the digital ecosystem through technology offerings. Furthermore, recovery in refining and petrochemicals businesses in FY22 estimates. The emergence of a clear path to a stronger balance sheet and stake sale in the retail business are other key positives. The stock is currently trading at 9.6 times 23 March estimated enterprise value to Ebitda and 19.1 times 23 March estimated earnings per share (EPS).
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