MUMBAI: Reliance Industries Ltd (RIL) is likely to report muted earnings growth in the first quarter of this fiscal as gains from its telecom business will be offset by weakness in its retail and refining and petrochemicals business, analysts said.
According to a Bloomberg survey of 10 brokers, net profit is expected to come in at ₹7,119 crore against ₹10,104 crore in the same quarter last year. Net sales is estimated at to come in at ₹1 trillion, according to a poll by 11 analysts. The company is scheduled to report its earnings on Thursday.
On Wednesday, shares of RIL closed at ₹2095.85, down 3.7% on the BSE.
Centrum Research which expects the first quarter to be the worst in three years for RIL, expects a 49% year-on-year (y-o-y) dip in petchem Ebit, 35% y-o-y dip in retail revenue, and $2.9 per barrel sequential dip in gross refining margins or GRM. GRM for the quarter come in between $5 per barrel and $9 per barrel.
During the quarter Benchmark Singapore GRMs were muted (–$ 0.9/bbl) owing to a massive hit on oil demand. GRMs could however, recover by second half of this fiscal as staggered easing of lockdowns across the country should revive transportation fuel demand.
Earnings in RIL's organised retail segment is also expected to be impacted by the covid-19 induced lockdown. Though the grocery segment is expected to have done well, fashion and electronics segments are likely to have taken the hit. According to Axis Capital, retail business is expected to post revenue decline of 15% year on year.
On Tuesday, analysts downgraded RIL shares citing steep valuations after a robust rally over the past few weeks. At the same timeforeign brokerage firms CLSA and Goldman Sachs said the stock will see upside to the current price.
The stock has risen 151% from the lows in March, with a 27.83% jump till 28 July and has rallied 45.17%, outpacing the benchmark Sensex.
Downgrading its rating from ‘outperform’ to ‘buy’, CLSA analysts said while its long-term promise and underweight position in portfolios may support the stock price, large valuation surprises may be difficult in the near term. CLSA set a target price of ₹2,250 factoring in the street-high valuation for Reliance Jio and Reliance Retail. CLSA expects the company’s market capitalization to cross $220 billion by March 2022.
RIL's telecom business Jio, is expected to make up for the weakness in other businesses.
“Strong performance by Jio gets offset by further deterioration in the energy and retail businesses," said Axis Capital in its research report. It expects RIL's earnings before interest, taxes, depreciation, and amortisation (Ebitda) to decline 13% year-on-year to ₹18,500 crore.