Shares of Reliance Industries (RIL), the most valuable company in India, on Monday plunged almost 9 per cent — the most since March 23 — after it reported a drop in profits for the quarter ended September 2020. The inventory 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 trade.
While RIL has taken steps to minimize its dependence on the energy trade, analysts say it continues to have a big influence on its earnings. Each and every $1 per barrel dip in the GRM impacts the group’s earnings by approximately 5 per cent, said Macquarie in a note. The brokerage expects the GRM to toughen 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 inventory to Rs 1,320 and also cut its earnings estimates by 20 per cent for FY22 and FY23.
CLSA believes the inventory may have run out of its near-term triggers. “Reliance has perhaps exhausted its large near-term inorganic triggers while we see a low likelihood of any big surprises from its biological earnings. However the long-term possibility, a near-term upside could also 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 newest losses may appear stark, but they have got come on the back of 2.7 times hop in the inventory price between March and September.
Analysts consider the inventory would possibly not fall further from the current levels.
“The not-so-great performance of the oil and gas trade has brought down the RIL inventory. The unlocking potential is strong in the retail and telecom businesses, and soon the inventory will find its backside,” said G Chokkalingam, founder, Equinomics.
The inventory price performance of RIL has a immense bearing on the overall market. For example, since October 14, the scrip has made a negative 1,214-point contribution to the Sensex, which is down 975 points all the way through the same period.
After this year’s stellar rally, RIL’s weighting in the index has touched 15 per cent. Then again, analysts don’t appear to be too worried approximately the market’s overdependence on the inventory.
“RIL is a combination of three businesses. Although sentiment turns poor for one specific trade, the other companies can help offset the overall have an effect on. From that perspective, the 15 per cent weighting isn’t a big issue. Going ahead, we can see more parts of RIL getting listed one at a time. What we are seeing is a transitory problem, which will get sorted over a time period,” said Abhimanyu Sofat, head of research, IIFL.
Experts say while the weakness in the RIL inventory might pinch the market now, it has been the biggest contributor to the market rebound from the Covid-19 lows on March 23.
“The inventory has done extremely mannered since the beginning of this year, and it has been a major outperformer. When the inventory went up, it made the biggest contribution to the gain in the Sensex and the Nifty. Today, we are having a look at a narrow period of two-three weeks,” said Jyotivardhan Jaipuria, Founder, Valentis Advisors.
Even after the newest 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 used to be at the start of 2020.