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Tuesday, April 27, 2010

RIL declines 1.61% after posting disappointing results last week

Shares of the oil-to-yarn and retail conglomerate Reliance Industries Ltd (RIL) lost 1.61% on Monday, after the firm’s disappointing quarterly results last week.

After the markets closed on Friday, RIL announced a 30% rise in fourth-quarter net profit to Rs4,710 crore, missing analysts’ forecasts.

Several brokerages have put out reports saying RIL’s results disappointed but at least one firm said it was not surprised and another saw a “budding turnaround” in its financials.

Calling the results “below expectation”, Nilesh Banerjee and Nishant Baranwal, sector analysts with the Indian arm of Goldman Sachs, said in a 25 April note that this was “primarily owing to higher non-cash charges and lower-than-expected refining margins”.

RIL had reported an unexpectedly high depreciation of Rs3,392 crore for the quarter and gross refining margins (GRM), or earnings from refining crude oil into fuels, of $7.5 (around Rs330) a barrel. Many analysts had predicted a GRM of $8-8.5 a barrel.

“We estimate PAT (profit after tax) CAGR (compounded annual growth rate) of 15% between FY10E-13E (fiscal 2010 and 2013). Moreover, we believe RIL would likely pursue inorganic growth in its businesses, as it will generate more than $20 billion of excess cash flow for FY11E-14E after its committed capex,” the Goldman analysts wrote.

Citigroup Inc.’s report said “poor refining” had dragged RIL’s financials and its premium to Singapore GRM—the regional benchmark—had “narrowed to $2.5, the lowest level in several years”.

RIL’s stock ended Monday at Rs1,069.80 on the Bombay Stock Exchange, while the Sensex, in which RIL has the highest weight, rose 0.29% to 17,745.28 points. “I think they (analysts) expected just too much in terms of refining margins,” RIL’s chief financial officer, Alok Agarwal, had said after the results on Friday.

RIL conceded that fiscal 2010 was a “tough year for refining with the weakest margins in a decade,” hit by “weak demand, high level of inventories and high crude prices”.

Macquarie Research’s Jal Irani and Abhishek Agarwal, who had in an earlier report predicted the latest quarter could be an “inflection point” for RIL, remain buoyant.

They said RIL had “an impressive 60% year-on-year surge in Ebidta (earnings before interest, depreciation, tax and amortization)” in the quarter and the “management confirmed our view of a budding turnaround in margins”.

Kotak Securities Ltd’s Sanjeev Prasad, Gundeep Singh and Tarun Lakhotia, who recommend selling RIL stock, wrote that the results presented “no surprises this time (phew)”. Kotak cut its fiscal 2011 earnings-per-share estimates for RIL by 7.5% to Rs61.6, and for fiscal 2012 by 2.7% to Rs79.3.

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