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'RIL may gain market share in oil & gas industry post Covid-19'
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SME Times News Bureau | 08 Apr, 2020
Reliance Industries Lts (RIL) is
likely to gain market share in the energy segment after the coronavirus
crisis is over, according to a report by Morgan Stanley.
"We
expect Reliance to gain market share with better profitability as the
current demand decline is driving global refiners and oil majors alike
to reassess growth plans to conserve cash. This provides a significant
headstart for RIL, which has expanded and upscaled its capabilities over
the past five years and now is among the top quartile on cost curve,"
it said.
The report said that oversupplied oil markets as
chemical and refinery markets tighten are a significant tailwind, as
well. Its strong energy backed cash-flows should help gain market share
faster in offline retail and telecom segments, as competition conserves
cash, it added.
The Morgan Stanley report noted that although net
debt may not decline if asset sales are pushed out, but RIL still might
not rise in the financial year 2020-21.
"Our bottom-up work on
the basis of F19 disclosures suggests limited liquidity challenges even
if RIL's utilisation rates and margins remain challenges in its cash cow
energy business. Also, about half of RIL's debt & liabilities are
largely USD funded, hedged via its dollar-linked energy cashflows.
However, RIL could raise debt, as some of its creditor liabilities fall
due or for refinancing," it said.
RIL's challenges have been well
documented in the current environment it said, as oil prices declined
along with a fall in global oil product demand as a result of the
Covid-19 lockdown across India and multiple geographies, potential
slowdown in fashion and electronics demand for its retail segment,
slower monetisation of telecom investments, and still relatively high
debt post the investment cycle.
"Consequently, RIL's share price
has dropped 21 per cent YTD, but still outperformed the market by 7ppts.
We lower our F21 earnings outlook to factor in these challenges, and
our price target also falls, as net debt rises due to reduced cashflows
in F21."
While the timing of normalisation is unclear, and every
month of these challenges negatively affects RIL sales volumes across
all its businesses, Morgan Stanley maintained its overweight rating as
its expect RIL to emerge in a strong position, as competition is
struggling even more, and cyclical businesses could get more medium-term
tailwinds as capacity growth globally slows, it said.
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Customs Exchange Rates |
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Import |
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As on 12 Oct, 2024 |
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