Morgan Stanley Downgrades RIL

Morgan Stanley has downgraded Reliance Industries Limited’s (RIL) stock to ‘equal weight’ (EW), leading to a 3.41% fall in the company’s shares to Rs. 1,255.15.

With this fall, the company has again lost the tag of India’s most-valued firm to Tata Consultancy Services (TCS) as RIL’s market capitalisation fell to Rs. 7,98,628.55 crore compared with TCS’s Rs. 8,13,779.67 crore.

Q4 numbers

“When RIL reported its Q4 numbers, I said that results from the refining and petchem segments were disappointing. The results looked good due to increase in other income and deferred tax liability. Reliance Retail and Reliance Jio are, however, doing good,” investment advisor S.P. Tulsian told The Hindu.

Morgan Stanley downgraded the stock with a price target of Rs. 1,349 a share, stating that the earnings growth of the company would halve in fiscal year 2020 and an upside in earnings appeared limited as the core operation of the company dragged.

Refining business

RIL’s revenue from refining business during the March quarter fell 6.1% to Rs. 87,884 crore, with 25.5% fall in EBIT to Rs. 4176 crore as the energy major refined less crude oil due to shutdown. Gross refining margins (GRMs) fell to $8.2 per barrel compared to $11 in the year-ago period.

Sanjiv Bhasin, executive vice-president at IIFL Securities, takes RIL downgrade by Morgan Stanley with a pinch of salt. “Morgan Stanley also has a 1 lakh Sensex target in the next 5 years and it can’t be without RIL touching new highs. RIL is a wealth creator. Reliance Jio is going to take on the likes of Netflix as it’s no longer a pure energy play,” Mr. Bhasin told The Hindu.

During the year, RIL’s outstanding debt increased by Rs. 68,742 crore to Rs. 2,87,505 crore compared to its cash and cash equivalents of Rs. 13,3027 crore as on March 31, 2019. Rising debt levels is one of the prime concerns of the analysts.

Reliance Jio, however, has reduced its liabilities of Rs. 1,07,000 crore by transferring its fibre and tower undertakings into special purpose vehicles controlled by InvIt. “RIL net debt is reduced to Rs. 1.54 lakh crore from Rs. 1.95 lakh crore in the year-ago period,” V. Srikanth, joint CFO, RIL, said after the announcement of the company’s results.

“After 12 years of huge capex in energy assets, RIL is selling stakes in some of these long gestation energy assets and this will not only improve the company’s return on equity, but will also de-leverage its balance sheet to a great extent and make surplus cash available to be invested in Jio,” Mr. Srikanth added.―The Hindu