Shares of Reliance Industries Ltd (RIL) have dropped about 5% in the past six months, compared to gains of about 30% in the Nifty 50 index. In the six months prior to that, RIL shares had risen more than 40%, while the Nifty had fallen 5%. One of the reasons the company’s shares have lost steam is that they had risen too high, too soon. Besides, financial performance lately hasn’t been as spectacular as some on the Street had hoped.
“Reliance Industries’ 3QFY21 consolidated business Ebitda was down 5% year-on-year, a 6% miss compared to our estimates," analysts at Motilal Oswal Financial Services said in a note to clients. The miss on consolidated numbers was largely on the back of a miss on standalone Ebitda, the broker added in a 24 January note. Ebitda stands for earnings before interest, taxes, depreciation and amortization, and excludes other income.
Standalone Ebitda fell as much as 33% y-o-y, and the drop in consolidated profit was contained at 5% largely because of better-than-expected profit margins in the consumer businesses.
Gross refining margin continues to be substantially lower y-o-y, and petrochemicals business’ profit margin, too, is much lower.
In the consumer businesses, too, while profits were decent, revenues were lower than estimates for both Reliance Jio and Reliance Retail.
Subscriber additions in the telecom business were sluggish at just 1%, and note that this includes a small contribution from the fixed broadband business. But average revenue per user (Arpu) has been rising, with the company telling analysts that some gains from the tariff hikes taken last December are still flowing in, as some subscribers had locked in to old tariffs for long periods.
Indeed, the increase in Jio’s Arpu since the tariff hikes lagged that of Bharti Airtel Ltd until the September quarter, and there seems to have been some amount of catch-up. But the sluggish growth in subscribers is a worry.
“(Jio’s) net subscriber additions at 5 million were its lowest ever in a quarter. Rise in monthly subscriber churn to over 1.5% for the past two quarters is impacting net additions. The company highlighted that continued impact of covid and campaigns against Reliance in some areas kept churn high in 3Q," analysts at Jefferies India Pvt. Ltd said in a note to clients.
“The consistent moderation in Reliance Jio’s subscriber additions despite its tariffs being at 7-20% discount to Bharti, could lead to delays in tariff hikes," Jefferies said. As such, investors may need to tone down estimates on Jio’s revenue. Motilal’s analysts added that core retail revenues are estimated to have dropped 30% year-on-year, compared to an 18% drop in Q2. However, retail profits were better than expected owing to cost-cutting measures.
Against this backdrop, investors awaiting fresh triggers for the RIL stock may be a tad disappointed.
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