Hold RIL, concerns over profit sustainability remain

Religare Institutional Research has downgraded Reliance Industries to hold, as the brokerage does not see any near-term triggers for the stock, which has limited valuation upsides.

In a research note after the earnings, Religare expressed concerns over the sustainability of profits in the next few quarters and said it expects petrochemical and refining margins to be volatile.

The better-than-expected gross refining margins - a key profitability parameter for refiners - of $7.6 per barrel was due to its ability to process a heavier crude mix, better optimisation of secondary units and product placement in premium markets, it said, adding it is the sustainability that is key for the coming quarters as globally the margins are under pressure.

[caption id=“attachment_386941” align=“alignleft” width=“380”]  Reuters[/caption]

The revival in gas production from the key Krishna-Godavari basin is subject to approval for the filed development plan for the satellite fields.

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The production from D6 block fell to 32.5 million metric standard cubic meter per day (mmscmd) from 36 mmscmd in the previous quarter due to natural decline. RIL hopes to revive production to 60 mmscmd in three-four years.

The weakness in the polyester business is also hurting the polymer margins, it said. The stock is likely to get support from the ongoing share buyback, the brokerage said.

Shares of Reliance Industries were down o.4 percent at Rs 719.45.