RIL shares fall over 10% in 4 sessions, erase over $10 billion in market value

Shares of Mukesh Ambani-led Reliance Industries Ltd on Thursday was trading at a two- month low, falling for the fourth session, tracking a fall in the local equity markets.

At 9.30 am, RIL was at ?1,272.30 a share, down 2.09% from its previous close, while India’s benchmark Sensex Index fell 0.48% to 37,608.14 points. Since 3 May, RIL has fallen nearly 10%, eroding over $10 billion in market valuation during this period. Local equity markets today fell for seventh session amid renewed trade war concerns.

Investors were cautious after Morgan Stanley downgraded RIL stock to “equal weight” with price target of ?1,349 a share. Investors are also worried due to RIL’s rising debt, and weak gross refining margin.

“We expect RIL’s two-year earnings upswing to reverse, yet investors are dismissing refining headwinds amid tighter crude markets. A rising glut in the gas and polyester markets could also slow growth into 2020. Upside appears limited amid core business drags, with no material capacity adds,” said Morgan Stanley in a 8 May report .

“We expect earnings growth to halve in F20, after a 17% CAGR, F17-F19. Downside earnings surprises in the energy business should unfold and attract increasing investor attention – a complete reversal in narrative after the positive triggers that played out since 2017. While the potential upside from digital investments could however offer structural upside as RIL rolls out new businesses, the cyclical headwinds in energy lead us to downgrade RIL to EW(equal weight),” Morgan Stanley report added.

RIL’s refining margin narrowed to a 17-quarter low at $8.2 a barrel in March quarter. Since launch of Jio, RIL’s debt has been increasing continuously due to higher capex. Its debt outstanding as on 31 March rose to ?2.87 trillion, from ?2.18 trillion at the end of the previous year.

On Monday, Bharti Airtel delivered better-than-expected revenue performance, led by healthy revenue growth of 4.3% quarter on quarter in India wireless business. EBITDA margin of the company improved by 145 basis points q-o-q to 32.2% in March quarter.

“We believe Bharti is moving in the right direction with aggressive 4G rollouts, partnerships, balance sheet strengthening etc. Bharti’s cash war chest is likely to increase by ?500-550 bn in FY20. This should provide it ammunition to combat competition. Persistent cash burn may compel Jio to relook its aggressive pricing stance. This is key trigger and likely,” said Himanshu Shah, analyst at HDFC Securities, in a 7 May note.

Reliance Jio net profit in the March quarter largely remained flat quarter-on-quarter at ?840 crore and average revenue per user declined to ?126 per subscriber per month.

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