Reliance Industries Ltd.
Reliance Industries Ltd.

New Delhi: Conglomerate Reliance Industries' earnings growth clarity has improved with better refining margins, lower tax rate and cheaper gas feedstock costs along with a steady rise in telecom subscriber, a Morgan Stanley Research report said.

According to the research note, rise in refining margins with improved demand and slower capacity growth as well as cheaper gas costs among other factors will function as key tailwinds for growth in 2020.

"We turn more bullish on Reliance Industries as earnings growth clarity improves with better refining margins, lower tax rate and cheaper gas feedstock costs. This, combined with a reduction of balance sheet leverage, should de-risk earnings growth and increase investor confidence on the 17% earnings CAGR seen for F2019-22e, which is among the top quartile vs. its regional energy and telecom peers," the research note said.

"As we approach IMO implementation on January 1,2020, diesel margins have risen 9% YTD since end-2018 and gasoline margins have improved as refineries try to maximise diesel output by lowering gasoline output. As well, cheaper gas prices should keep RIL's operating cost inflation low."

On the impact of corporate tax rate reduction, the report said: "We estimate a 400bp reduction in the consolidated tax rate RIL's businesses paid in F2019 of 29-35%, much higher than the new corporate tax rate of 25.2%". "RIL also has deferred tax liabilities of US$6.5bn as of F2019, which could reduce with a lower tax rate."

RIL shares were up over 3%; m-cap rises by Rs 25,305 cr after Morgan Stanley report. Overall, the firm has raised its earning estimates by 7% for F2020 and 12% for F2021.

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