RIL: Weakening fundamentals - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

RIL: Weakening fundamentals

Oct 31, 2001

At first glance, Reliance Industries Ltd. (RIL) seems to have reported a sharp drop in net sales of 26.1%. However, YoY effect is due to the inclusion of merchant sales in last year's numbers. Till last fiscal, RIL was exporting petroleum products for Reliance Petroleum Ltd. (RPL).

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Net Sales 76,840 56,790 -26.1% 136,960 114,350 -16.5%
Other Income 760 1,680 121.1% 1,540 2,950 91.6%
Expenditure 63,520 44,330 -30.2% 112,070 90,140 -19.6%
Operating Profit (EBDIT) 13,320 12,460 -6.5% 24,890 24,210 -2.7%
Operating Profit Margin (%) 17.3% 21.9%   18.2% 21.2%  
Interest 3,330 2,550 -23.4% 6,310 5,120 -18.9%
Depreciation 3,810 4,220 10.8% 7,470 8,180 9.5%
Profit before Tax 6,940 7,370 6.2% 12,650 13,860 9.6%
Tax 340 350 2.9% 620 660 6.5%
Profit after Tax/(Loss) 6,600 7,020 6.4% 12,030 13,200 9.7%
Net profit margin (%) 8.6% 12.4%   8.8% 11.5%  
No. of Shares (eoy) 1,054 1,054   1,054 1,054  
Diluted Earnings per share* 25.1 26.6   22.8 25.1  
P/E Ratio   9.5     10.2  
*(annualised)            

Merchant sales in 2QFY01 were Rs 16,730 m. Adjusting for merchant exports, net sales from core business has declined by 5.5% YoY. This is below our expectation of 2% growth. That said, we had mentioned the possibility of downside risk being greater on topline for 2QFY02, as volumes could not have entirely compensated for the erosion in realisations. In fact, the company has reported a 2% decline in sale volumes for 1HFY02. On the other hand production increased by 9.1% but inventory value has declined YoY. This could indicate a sharp drop in final product realisations.

Similar to net sales, operating expenses of the previous period include cost of merchant exports, which is leading to a large YoY effect. Adjusting for the same, operating expenses have decreased by an estimated 5.3% and 0.4% respectively for the quarter and half year ended September '01. Lower costs are largely due to raw material expenses, which have declined by 13.6% YoY for the concerned quarter. With a downturn in the global and domestic economy average naphtha prices declined for the concerned quarter by 8% YoY. However, any relief from lower naphtha prices was denied with a larger drop in final product prices. Therefore, although operating margins are showing an increase, core business margins (petrochemicals) are estimated to have marginally declined by 30 basis points for 2QFY02 and 40 basis points for 1HFY02.

This is the third consecutive quarter the company has reported a YoY drop in interest expense. This is largely due to the ongoing capital cost reduction exercise. RIL continues to refinance high cost debt with low cost borrowings. Also, the company has re-paid a part of its long-term debts. Depreciation costs have increased largely due to the change in method of depreciation from straight line to written down value method and revaluation of assets. Depreciation costs for 2QFY01 have been re-stated higher by Rs 410 m on account of change in method adopted during FY01. Consequently, pre-tax profits for the period are lower by the same amount.

Other income over the concerned periods has exhibited a dramatic increase. This is primarily due to dividends earned from Reliance Petroleum Ltd. (RPL)., which are being accounted for on a pro-rata basis over the four quarters. Other income also includes interest earned on bonds issued by Reliance Infocom.

At Rs 254 the RIL scrip is trading on a multiple of 10.2x 1HFY02 annualised earnings. Over the past six months valuations have retreated to reflect fundamentals. On a consolidated basis, the company earns Rs 33.6 per share.


Equitymaster requests your view! Post a comment on "RIL: Weakening fundamentals ". Click here!

  

More Views on News

RELIANCE IND. at All Time High; BSE OIL & GAS Index Up 1.0% (Market Updates)

Oct 22, 2019 | Updated on Oct 22, 2019

RELIANCE IND. share price has hit an all time high at Rs 1,438 (up 1.2%). The BSE OIL & GAS Index is up by 1.0%. Among the top gainers in the BSE OIL & GAS Index today are RELIANCE IND. (up 1.2%) and BPCL (up 1.5%). The top losers include CASTROL INDIA (down 0.2%) and INDRAPRASTHA GAS (down 0.9%).

RELIANCE IND. 2018-19 Annual Report Analysis (Annual Result Update)

Jul 25, 2019 | Updated on Jul 25, 2019

Here's an analysis of the annual report of RELIANCE IND. for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of RELIANCE IND.. Also includes updates on the valuation of RELIANCE IND..

RELIANCE IND. Announces Quarterly Results (1QFY20); Net Profit Up 6.8% (Quarterly Result Update)

Jul 22, 2019 | Updated on Jul 22, 2019

For the quarter ended June 2019, RELIANCE IND. has posted a net profit of Rs 101 bn (up 6.8% YoY). Sales on the other hand came in at Rs 1,613 bn (up 21.3% YoY). Read on for a complete analysis of RELIANCE IND.'s quarterly results.

RELIANCE IND. Announces Quarterly Results (4QFY19); Net Profit Up 9.5% (Quarterly Result Update)

Apr 22, 2019 | Updated on Apr 22, 2019

For the quarter ended March 2019, RELIANCE IND. has posted a net profit of Rs 104 bn (up 9.5% YoY). Sales on the other hand came in at Rs 1,416 bn (up 17.9% YoY). Read on for a complete analysis of RELIANCE IND.'s quarterly results.

RELIANCE IND. 2017-18 Annual Report Analysis (Annual Result Update)

Nov 28, 2018 | Updated on Nov 28, 2018

Here's an analysis of the annual report of RELIANCE IND. for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of RELIANCE IND.. Also includes updates on the valuation of RELIANCE IND..

More Views on News

Most Popular

My 3 Best Small-cap Stocks to Get Rich in this Market Rebound (Profit Hunter)

Oct 14, 2019

This is once in a decade opportunity to make a killing from smallcap rebound.

Buy these 3 Stocks for Rebound Riches

Oct 18, 2019

Equitymaster's smallcap guru and editor of Hidden Treasure, Richa Agarwal, talks to us about the rebound in the stock market, and the best stocks to profit from it. Listen in...

Two Stocks to Buy in the Great Indian Festival (Profit Hunter)

Oct 11, 2019

Discounts are not just limited to E-tailers. You can buy stocks at 50% off too. Here are two stocks to buy now.

The One Stock I Like in this Market (The 5 Minute Wrapup)

Oct 10, 2019

There are rare periods in markets when you get good quality stocks at attractive valuations. Is this one such period?

5 Smart Money Stocks to Profit from the Market Rebound (The 5 Minute Wrapup)

Oct 11, 2019

Now is the time to put money in these 5 stocks to take advantage of the recovery in the economy and the markets.

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2020
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

RELIANCE IND. SHARE PRICE


Oct 22, 2019 (Close)

TRACK RELIANCE IND.

  • Track your investment in RELIANCE IND. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

RELIANCE IND. 8-QTR ANALYSIS

COMPARE RELIANCE IND. WITH

MARKET STATS