Results fell short of expectations due to lower than anticipated oil-to-chemical (O2C) profitability, according to analysts.
In intraday trading on Monday, shares of Reliance Industries fell 4% to Rs 2,404 on the BSE after the company reported a lower-than-anticipated consolidated net profit of Rs 17,955 crore for the quarter ended June 30, 2022 (Q1FY23), up 46.3% from the same period last year. Bloomberg conducted an analyst survey, with an estimated net profit of Rs. 21,615 crore.
Gross sales for the quarter for the oil-to-telecom conglomerate totaled Rs 2.43 trillion, up 53% from the same time last year. PBIDT (profit before interest, depreciation, and tax) for the entire company increased by 45.9% year over year to Rs 40,244 crore in Q1, exceeding the estimate of Rs 38,474 crore.
Due to lower than anticipated O2C profitability, the results fell short of expectations. O2C Ebitda increased by 62.6 percent year over year to Rs 19,888 crore. According to ICICI Securities, it was lower than anticipated because of higher operating and purchasing costs for crude.
“Global refining margins fell in Q2FY23E-TD from highs seen in Q1FY23. Additionally, the imposition of a windfall tax on fuel exports will reduce the profitability of refining. The company’s balance sheet is relatively strong and moving forward, key investments in new energy verticals will be trackable “In a note, the brokerage firm stated.
The management thinks that improving aviation demand, easing pandemic concerns, and a decline in Chinese exports will support product margins going forward. The demand for polyester and polymers is anticipated to increase during the upcoming holiday season, despite the fact that PX, PTA, and MEG margins are predicted to be range-bound due to capacity overhang.
“We value the Refining and Petrochemical segment using SOTP at 7.5x FY24E EV/EBITDA, which results in a standalone business valuation of Rs 721/share. Taking into account the most recent stake sale, we assign an equity valuation of Rs 960 per share to RJio and Rs 1,173 per share to Reliance Retail. Our increased EV/EBITDA multiples, which are 39x for retail and 18x for digital services, highlight fresh growth opportunities in the digital sector and consistent market share gains.” Finance company Motilal Oswal said in a result update.