Why Reliance Industries stock fell over 3% today after firm clocked highest quarterly net profit

The Reliance Industries stock was among the top losers on Sensex and Nifty today after the Mukesh Ambani-led firm logged its highest-ever quarterly profit of Rs 9,435 crore in Q4, beating street estimates. At 12:08 pm, the stock was trading 2.67% or 26 points lower at 968 level on BSE.  It opened at 984 level and hit an intra day high of 992 level. The Reliance Industries stock closed 3.18% or 31 points lower at 963 level on BSE.

On Friday, the stock hit its 52-week high of Rs 1,010 on BSE ahead of its Q4 earnings.

We decode why the stock fell against expectations.

One of the reasons seen behind the surprise fall is valuations of the stock are rich.

Investment research firm Jefferies has assigned a "underperform" rating to the stock with price target of Rs 790.

Disappointed with RIL's Q4 earnings, brokerage Kotak Institutional Equities has reiterated 'reduce' rating on the stock with a target price of Rs 930 from Rs 900 earlier.

"Elevated capex (Rs 0.79 trillion), still large capital-WIP (Rs 1.87 trillion), high effective debt (Rs 2.35 trillion) and Reliance Jio's balance sheet (Rs 2.54 trillion) take the sheen away from RIL's remarkable 17 per cent growth in EPS to Rs 59 in FY2018," said Kotak said in a results review.  

"We expect growth trajectory to slow down from exit-quarter EPS of Rs 16 until Jio picks up, given near full utilisation of petchem projects, limited upside to downstream margins and likely subdued contribution from gasifiers," it added.

According to Motilal Oswal, renewed focus on competition in the form of downward revisions in price plans led to an 11 percent quarter-on-quarter fall in average revenue per user to Rs 137.

Although recent ARPU cuts have been disappointing, competitive intensity may abate over next 2-3 quarters, said the brokerage.

Gross refining margins

Exploration and production earnings

Oil and gas production Production of KG-D6 gas declined to 4.3 mmscmd ( -42 % YoY, -14 % QoQ). Shale gas production fell to 28.7 billions of cubic feet equivalent (bcfe) ( -27 % YoY, -11 % QoQ) due to natural decline and temporary shut-in of wells.
Average Revenue Per User (ARPU) slipped to Rs 137.1 per month during the reported quarter. The ARPU stood at Rs 154 per subscriber per month in the three months to December.

The telecom arm of Mukesh Ambani-led Reliance Industries saw its net profit for the March quarter marginally increase 1.2 per cent on a quarter-on-quarter (QoQ) basis to Rs 510.44 crore from Rs 504.38 crore in the preceding quarter.