RIL shareholders lose Rs 1.2 trillion as Q2 earnings weigh on stock

Ambani slips four places on global rich list

Shares of Reliance Industries (RIL), the most valuable company in India, on Monday plunged nearly 9 per cent -- the most since March 23 -- after it reported a drop in profits for the quarter ended September 2020. The stock price rout wiped $16 billion (Rs 1.2 trillion) off the firm’s market capitalisation and eroded promoter Mukesh Ambani’s personal wealth by $6 billion (Rs 45,000 crore). This also hit Ambani’s ranking on the world’s rich list, pushing him down to 10th from the sixth spot.

The company’s shares closed at a three-month low of Rs 1,876, while its partly paid-up shares hit the 10 per cent lower limit to end at Rs 1,065.

While the telecom and retail divisions of RIL posted encouraging numbers for the September quarter (Q2), the deteriorating outlook for the oil and gas vertical spooked investors and prompted analysts to scale back optimism.

RIL’s gross refining margin (GRM), the money the company makes from refining a barrel of crude oil, dropped to an 11-year low of $5.7 in Q2FY21 compared with $9.4 a year ago. Covid-19-related curbs have severely impacted global fuel demand, hitting the energy business.

While RIL has taken steps to reduce its dependence on the energy business, analysts say it continues to have a big influence on its earnings. Every $1 per barrel dip in the GRM impacts the group’s earnings by about 5 per cent, said Macquarie in a note. The brokerage expects the GRM to improve to $8-9 per barrel in the next two quarters, much below the peak of $12 per barrel in FY18.

Macquarie has slashed its 12-month target price for the stock to Rs 1,320 and also cut its earnings estimates by 20 per cent for FY22 and FY23.

CLSA believes the stock may have run out of its near-term triggers. “Reliance has possibly exhausted its large near-term inorganic triggers while we see a low likelihood of any big surprises from its organic earnings. Notwithstanding the long-term opportunity, a near-term upside may be capped,” said CLSA analysts Vikash Jain and Surajdev Yadav in a note.

Ahead of its results on Friday, shares of RIL were already down by more than 10 per cent from its peak in September. The latest losses may appear stark, but they have come on the back of 2.7 times jump in the stock price between March and September.

Analysts believe the stock may not fall further from the current levels.

“The not-so-great performance of the oil and gas business has brought down the RIL stock. The unlocking potential is strong in the retail and telecom businesses, and soon the stock will find its bottom,” said G Chokkalingam, founder, Equinomics.

The stock price performance of RIL has a huge bearing on the overall market. For instance, since October 14, the scrip has made a negative 1,214-point contribution to the Sensex, which is down 975 points during the same period.

After this year’s stellar rally, RIL’s weighting in the index has touched 15 per cent. However, analysts don’t seem to be too worried about the market’s overdependence on the stock.

“RIL is a combination of three businesses. Even if sentiment turns bad for one particular business, the other companies can help offset the overall impact. From that perspective, the 15 per cent weighting is not a big issue. Going ahead, we will see more parts of RIL getting listed separately. What we are seeing is a temporary problem, which will get sorted over a period of time,” said Abhimanyu Sofat, head of research, IIFL.

Experts say while the weakness in the RIL stock might pinch the market now, it has been the biggest contributor to the market rebound from the Covid-19 lows on March 23.

“The stock has done extremely well since the beginning of this year, and it has been a major outperformer. When the stock went up, it made the biggest contribution to the gain in the Sensex and the Nifty. Today, we are looking at a narrow period of two-three weeks,” said Jyotivardhan Jaipuria, Founder, Valentis Advisors.

Even after the latest declines, RIL’s market cap is up $37 billion on a year-to-date basis, while Ambani is still richer by $13 billion than what he was at the start of 2020.