Shares of Reliance Industries plunge 6% on disclosure concerns

Shares of Mukesh Ambani-led Reliance Industries (RIL) plunged nearly six per cent — the most since November 2 — after analysts raised concerns over disclosure standards. The country’s most-valuable firm on Friday reported record quarterly profit for the quarter ended December 31, but didn’t disclose gross refining margins (GRM), a key metric to analyse its oil and petrochemicals vertical, which accounts for about 70 per cent of revenue.

“Transparency levels are falling across businesses. RIL has stopped reporting a key matrix — GRM — altogether. Similarly, it has ceased providing division-wise turnover breakdown for retail and Jio’s key driver FTTH (fiber-to-the-home) lacks granularity,” said Edelweiss analysts, led by Jal Irani, in a note.

Beating analysts’ estimates, RIL reported 13 per cent year-on-year (YoY) growth in net profit to Rs 13,100 crore. The performance of the oil-to-chemicals (O2C) and retail verticals missed expectations, while telecom arm surpassed estimates.

“The company has ceased providing disclosures on separate refining and petchem performance. The reason for this miss is hence difficult to ascertain; we reckon it was largely due to sustained refining weakness,” Citigroup analysts, led by Saurabh Handa, said in a note to clients.

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Edelweiss said RIL’s profit managed to beat estimate “entirely driven by investment income and a near-zero tax liability.”

Shares of RIL fell Rs 114.5, or 5.6 per cent, to end at Rs 1,935. From the peak of Rs 2,324 on September 16, RIL shares have dropped nearly 17 per cent and the company has lost nearly Rs 2.6 trillion in market value. The slide has put at risk its tag as “India’s most-valuable firm”. RIL’s current market cap is Rs 12.75 trillion, ahead of Tata Consultancy Services’ at Rs 12.35 trillion.

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Some analysts believe the company could continue to underperform the markets. Macquarie’s Aditya Suresh and Abhinil Dahiwale said they expect RIL’s earnings in FY22-23 to be 25 per cent below consensus estimate. They have a price target of Rs 1,350 for the stock.

“We forecast FY21 core EPS to fall 10 per cent to Rs 60 (previous estimate Rs 55), followed by a recovery to Rs 70-80 (rounded) in FY22-23, versus consensus at Rs 95-115, respectively,” they wrote. “Today’s stock price implies flawless execution on RIL’s multi-pronged growth aspirations, combined with a premium over recent deal valuations.”

Macquarie said the headline earnings growth for the December quarter was impressive, but was supported by 1 per cent effective tax rate and $106 million investment gain for the retail division.

“Adjusting for this and adding back an impairment in exploration and production, on our estimates underlying EPS was down 30 per cent YoY,” it said.

RIL has taken giant steps towards reducing its dependency on its energy business and is working towards becoming a telecom and retail titan. The company last year raised $27 billion from global investors as part of this goal.

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