Reliance Industries shares slump 3% after GRM fall; should you buy or sell stock?

Shares of billionaire Mukesh Ambani-led Reliance Industries slumped in trade on Monday morning, after the firm’s GRMs came in at the lowest level since Q3FY15. Reliance Industries shares slumped nearly 3% to hit the day’s low at Rs 1,345.30 on BSE. Notably, the firm has reported a drop in standalone net profit for the first time in 17 quarters. Reliance Industries reported a total net profit of Rs 10,362 crore for the January-March quarter, a jump of 9.79% compared to the same period last year, becoming the first ever firm to report above Rs 10,000 crore profit in two consecutive quarters. For the full fiscal year, RIL reported a 13.1% rise in net profit to Rs 39,588 crore.

The oil-telecom conglomerate’s gross refining margin — a key metric of its profitability from turning crude oil into petroleum products — fell slightly in the quarter to $8.2 per barrel from $8.8 per barrel in the previous quarter. Taking stock of the results, Kotak Institutional Equities has revised FY20-21 EPS estimates to Rs 75 (down 2%) and Rs 87 respectively ( up 1%). The brokerage firm said that it factors in lower subscribers/ ARPU for Reliance Jio, and a higher retail contribution. Kotak Institotional Equities has a sell rating on the stock with a target stock price of Rs 1,100. The firm is concerned about persisting high capex and rising leverage.

Morgan Stanley said that the Q4 results represents is 7% higher than its estimate, but with a slight miss on EBITDA. The refining margin is slightly better, but telecom ARPU is lower than expected. Improved utilisation will drive earnings growth of 18% into FY20. The firm’s asset monetisation will help to transfer $8.7 billion of liabilities to InvIT. The firm has an overweight call on the shares with a target price of Rs 1,230.

According to CLSA, a $15 billion cut in liabilities in liabilities and capex intensity may have peaked. The lease payments for demerged assets drives a 3-8% cut in EPS estimates. CLSA has maintained a buy call on the shares with a target price of Rs 1,665.

Reliance Industries Limited (RIL)