Standard Post with Image

RIL's Q3 Refining Margins Set to Fall: Edelweiss Securities

 

  • Traders and investors at Dalal Street will be keen to watch the TV screens post closing bell as India's largest company by market-cap Reliance Industries is all set to make the headline this evening with its quarterly results.
  • Mukesh Ambani's flagship company will also unveil the details of buyback program announced earlier this week. Niraj Mansingka, vice-president of institutional equities - Research at Edelweiss Securities expects RIL to declare buyback size in the range of Rs 10,000-15,000 crore. "The company will need to execute buyback to boost sentiment." he adds.He expects the company to clock profit of Rs 4511 crore in third quarter.
  • Below is the edited transcript of Mansingka's interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18.

 

  • Q: What do you think maybe the size? Will they work with that 10% of equity and what do you think might be a price they arrive at?

  • A: It is slightly speculative. Reliance has announced buyback of around 10% of the net worth, the buyback numbers can be between Rs 10,000-15,000 crores range. If you have to assume market price, at the current market price Rs 750-800 should be the range at which they should be announcing probably. If it is around Rs 750 and they execute whatever they announce, it is a significant positive on the stock price movement for the next few months.

  • Q: What is your profit after tax (PAT) expectation figure?

  • A: We are expecting Rs 4,511 crores for this quarter. We are expecting a significant fall in refining margins, muted correction in the petrochemical margins and slightly higher EBIT in the oil and gas because of rupee depreciation and lower depreciation in oil and gas assets.

  • Q: If Reliance were to try and get to a surprising number of say close to Rs 5000 crores which analyst like you do not expect, where could it come from? Could it be a USD 7 plus refining margin or could it be from any other quarter?

  • A: Our numbers of Rs 4511 crores, in corporate USD 7.25 per barrel of refining margins and a 12% sequential EBIT fall in the petrochemicals. If you have to ask me where the swing will come, if it comes has to be refining margins but we don't see that happening much.

  • Q: What is your figure for margins? Are you working USD 6.5 per barrel as well or lower or higher?

  • A: No, we are slightly higher. We believe Reliance will be doing USD 7.25 per barrel. Last quarter they reported USD 10.1. We also believe that Reliance does some amount of spread hedging, so whatever was the margin that was reported last quarter, some amount of impact will have on a positive side for this quarter as well. That is the reason why we have assumed USD 7.25 in our refining margins.

  • Q: What's your price target on the stock now and what you say over the medium term as well there maybe a bit of a floor because of this buyback announcement?

  • A: We have a buy rating, we have target price Rs 1148. In terms of expectation versus the stock performance, the stock's bear case itself to us looks like not lower than Rs 1,000. If the buyback does come in, it will add definitely a lot of pressure on the fund managers who are underweight to slightly at positions on the stock. Because there fund managers get a comfort that the stock may not fall below a particular price, whichever is the base price with Reliance tries announce today.We will see a positive rub off on the buyback announcements that can come in. The key trigger will be the price till which there will be buying and also the fact whether they will be really executing. Last time they announced a buyback of Rs 3,000 crores in December 2004. They barely bought Rs 149 crore worth of shares from the market. Just an announcement may not really push up the stock price, execution of that announcement, if the stock price is in that range is what which will be really watched for the market.

Source