Shutdown of refineries, windfall taxes on fuel exports, and lower product cracks are likely to pull down the conglomerate’s earnings sequentially in Q2, the global investment bank said.
Morgan Stanley expects
’s consolidated earnings before interest, taxes, depreciation and amortisation (EBITDA) to decline 17 per cent sequentially to Rs 31,748 crore due to lower gross refining margins and windfall tax.
It expects RIL’s consolidated net profit to fall 17 per cent sequentially to Rs 14,948 crore.
Weak demand for petrochemicals in China and a modest increase in the average revenue per user (ARPU) for the telecom business are also likely to limit the earnings upside for RIL.
“With refining margins below cash cost vs a peak just last quarter, volatility in oil prices and limited visibility of recovery in olefin demand point to peak challenges,” Morgan Stanley said in its report.
In the last one year, shares of RIL have fallen 6% compared with Nifty50’s 3% fall. This fall reflects the volatility in energy markets and the impact of windfall gains taxes on exports.
At the current level of the stock, “we believe much of these challenges are priced in and think risk-reward could appear more interesting,” the investment bank said, backing its rationale for the “overweight” rating on the stock.
The key things to watch out for will be the net debt levels and RIL’s investments in retail and new energy verticals, said Morgan Stanley.
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