Reliance Industries share price falls 1.5% ahead of Q3 results; retail, refining biz in focus

Reliance Industries Ltd (RIL) share price fell as much as 1.5% on Friday morning to trade at Rs 2,065 per share, just ahead of the quarterly results. Mukesh Ambani’s RIL will announce its quarterly results today where eyes will be glued on how its traditional cash cow, the oil refining business is recovering and how strong growth is being recorded in the freshly carved out segments like retail. Stock price of the oil-to-telecom conglomerate has lagged the benchmark Nifty 50 since September 2020.

Stock call: Should investors ‘buy’ RIL shares at this price?

The stock of the largest listed private company in India, so far in 2021, has jumped 5%. However, it is still trading below its 52-week-high of Rs 2,368 per share. Analysts at Goldman Sachs find the RIL stock to be at an attractive entry point for investors. Earlier this month, the brokerage firm said that it believes RIL will continue to stage a sequential recovery helped by telecom tariff hikes, new product launches, and a potential energy business stake sale. Goldman Sachs has a target price of Rs 2,390 per share on the scrip. Domestic brokerage firm Prabhudas Lilladher has a target price of Rs 2,232 per share, while Kotak Securities has an ‘Add’ rating with a target price of Rs 2,150 apiece.

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Further, just ahead of its quarterly earnings release, RIL and Future Group have received the nod of SEBI and the stock exchanges to cement their deal announced earlier last year. The Rs 24,713 crore deal would see Mukesh Ambani and his RIL buy the retail assets of Kishore Biyani’s Future Retail. The deal is expected to strengthen Ambani’s retail business, making it the largest in the country.

Q3 earnings preview

“Reliance Industries will continue to see a sequential recovery in December quarter, this time helped by retail, petrochemicals, and refining business,” said JM Financial Services in a note. They added that gross refining margins are expected to be in the range of $6-$7 per barrel, driven by higher crude throughput. “The retail business, which is the second largest in terms of sales, will be boosted by higher footfalls during the festive period,” they added.

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Analysts at Goldman Sachs believe core retail revenue will grow 10% on-year basis. “We expect positive growth for grocery while fashion and electronics will remain flattish YoY,” they said. For the refining business, GRM of US$6.5/bbl is expected. Continued gasoline consumption across the globe and petcoke gasification benefits have been listed as reasons behind the improvement in refining margins and volume increase.

On telecom, Goldman Sachs expects an Average Revenue Per User (ARPU) of RS 148, up 2% from the previous quarter, while revenue is expected to jump 4% on-quarter. The telecom arm of RIL, is likely to have added 6 million to 10 million customers during the period, according to JM Financial Services. The brokerage firm added that ARPU could have improved to Rs 148-150.

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