The gap between Reliance Industries stock and the Nifty 50 index might be narrowed by the muted earnings growth of Reliance Industries’ core energy vertical in the quarter ended March. The Reliance stock has outperformed the Nifty by 15% in the past three months and contributed to about 25% of the index’s gains. In the quarter, the profit was better than the Bloomberg consensus estimate, but the quality of earnings may weigh on investor sentiment as it was driven by higher other income and lower tax rates. 

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in FY19, the company’s capital expenditure was almost Rs 1.32 lakh crore as it continued to invest in Reliance Jio Infocomm, its digital business unit, and Reliance Retail, its organised retail venture. As a result, the company’s debt increased by over 30% to Rs 2.87 lakh crore at the end of FY19.  Though, the downside for the stock is likely to be capped by strong earnings growth from the newer businesses — retail and telecom. The share of these businesses in total operating profit widened to 26.7% from 10.12% a year earlier. 

The operating profit of the oil refining business fell 25.5% to Rs 4,176 crore from a year earlier due to weaker global refining margins and lower refinery throughput after a refinery maintenance shutdown. Reliance’s gross refining margin-—the difference between the prices of petroleum products and crude oil — dropped to $8.2 per barrel from $8.8 in the previous quarter. 

The Singapore GRM — a gauge of regional refining margins — dropped 25% sequentially to $3.2 per barrel. Reliance’s premium to the Singapore refining margin increased to $5 per barrel in March, a gain of $0.5 from the previous quarter. The GRM for FY19 stood at $9.2 per barrel against $11.6 in the previous year. 

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