Mukesh Ambani-led Reliance Industries Ltd (RIL)’s consolidated earnings would be lower by 9 per cent while operating cash flow would fall 14 per cent in FY21 following 20 per cent stake sale in its oil-to-chemical (OTC) business to Saudi Aramco, as per a Morgan Stanley report.
RIL, in its recent AGM, had announced agreeing to a non-binding letter of intent from Saudi Aramco regarding proposed investment in its refining, petrochemicals and fuel marketing business.
“We upgrade RIL to Overweight after the near 12 per cent decline in the past three months and 8-10 per cent cut in earnings expectations for FY20 and F21. We believe the expectations are a lot more moderated, and with both refining and petrochemical industry margins touching cash cost quite quickly in the past quarter, the downside risks are now well flagged,” said the advisory note to investors.
Noting hat while recovery in energy margins will be slow (especially against the backdrop of weak global demand), Morgan Stanley said it sees support from slowing supply growth in polyethylene and refining.