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Reliance Industries Rating: Buy – Building the next engine of growth

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We delve deep into Reliance Industries (RIL)’s FY22 Annual Report, underscoring the key initiatives and business outlooks for its various segments. The key highlights of our analysis are:

The report showed RIL’s FY22 belonged to the O2C (order to cash) segment performance that outpaced other segments, even as RJio retained its market share. Retail business saw a steady recovery. The high crude prices led to 56% y-o-y Ebitda growth in O2C business while Retail grew 28% y-o-y; RJio growth, however, decelerated to 22% y-o-y. Post-equity raise during the last couple of years, FY22 saw a strong capex with heavy investments, especially in RJio, which included a large-scale spectrum investment. Retail witnessed aggressive footprint additions, while new energy reported aggressive acquisitions. The growth momentum and improved margin profile across the sector will drive RIL’s revenue/Ebitda growth of 25%/32% in FY23E, respectively. Over the next two-to-three years, RIL is likely to create the next engine of growth but it could put pressure on its near-term return ratios.

Also Read: FPIs infuse Rs 5,600 crore in Indian equities in September so far 

Retail benefitting from Covid-19 recovery and store additionsReliance Retail clocked a robust growth of 29%/28% y-o-y in standalone revenue/Ebitda, propelled by recovery in footfalls as well as footprint additions. Core Ebitda too rose 35% y-o-y, though merely 6% over pre-Covid levels, as resumption in business included incremental costs.

Store additions (of 2,485) remained strong and the continued focus on online segment too reaped benefits.

O2C segment benefiting from higher crude pricesRIL restructured its Refining and Petrochemical segments into the O2C segment to attract strategic partnerships. Demand improved in FY22 y-o-y (on a lower base), which led to expanded margins in refined products. Gasoline margin improved sharply .

Opening up of the economy and removal of travel restrictions would enable demand to pick-up faster than expected. SG GRM to remain high at an average of ~$18/bbl in FY23, as demand continues to outweigh supply. Management believes that low Chinese exports and peak maintenance season will support product margins going forward.

Capex and debtRIL’s total capex stood at Rs 970 bn, primarily for the Digital, Retail, and O2C businesses along with the forex impact, while capitalised capex stood at Rs 1.5t primarily due to RJio.

Valuation and viewThe crude price improvement continues to prop up strong growth momentum in FY23. We expect consolidated revenue and Ebitda to clock 15% CAGR each over FY22-FY24, which do not factor in any incremental growth from 5G capex, new energy and other segments. These could create the next engine of growth over the next two-to-three years as each of retail, telecom and new energy is seeing notable technological advancement with ambitious growth targets. However, this has the potential to dent the existing single-digit return ratios. We reiterate our BUY rating on RIL with a TP of Rs 2,880.

US Stocks: Tech stocks drive gains in futures

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U.S. stock index futures rose broadly on Friday, led by gains in tech and high-growth stocks, with investors awaiting key inflation data next week for clues on the pace of interest rate hikes by the Federal Reserve.

Fed Chair Jerome Powell’s hawkish comments led to a choppiness in trading on Thursday, but the three major indexes were still on track to post weekly gains and snap a three-week losing streak.

The CBOE volatility index, a gauge of investor anxiety, remained elevated at 23 points, which is above its long term average of 20.

Also Read: Share Market HIGHLIGHTS: Sensex ends 105 pts up, Nifty at 17833 amid volatility; Infosys, TCS, SBI stocks jump

Meanwhile, the U.S. dollar retreated from recent peaks after the European Central Bank’s 75-basis point rate hike on Thursday helped boost sentiment and provide some relief for global stocks and currencies.

High growth stocks Tesla, Apple Inc, Alphabet Inc, Amazon.com Inc firmed about 1% each in premarket trading.

Investors will now watch out for the August U.S. inflation report due next Tuesday to gauge the likelihood of another large interest rate hike from the Fed at its policy meeting later in the month.

Traders are pricing in an 87% chance of a 75 basis point rate hike at the next meeting, up from 57% a week earlier, according to CME Group’s Fedwatch tool.

At 6:41 a.m. ET, Dow e-minis were up 264 points, or 0.83%, S&P 500 e-minis were up 36.5 points, or 0.91%, and Nasdaq 100 e-minis were up 143.25 points, or 1.16%.

Shares of Digital World Acquisition Corp, the blank-check company which has agreed to take former U.S. President Donald Trump’s social media company public, rose 6.2% premarket after it said it would extend its life by three months.

Shares of Caterpillar Inc rose 1.6% after the company reached a tax settlement with the U.S. IRS.

S&P 500 ends near two-year low as bear market deepens; 10-yr treasury yield touches highest in over 12 yrs

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Wall Street sank deeper into a bear market on Tuesday, with the S&P 500 recording its lowest close in almost two-years as Federal Reserve policymakers showed an appetite for more interest rate hikes, even at the risk of throwing the economy into a downturn. The benchmark S&P 500 is down about 24% from its record high close on Jan. 3. Last week, the Fed signaled that high rates could last through 2023, and the index erased the last of its gains from a summer rally and recorded its lowest close since November 2020. The S&P 500 has declined for six straight sessions, its longest losing streak since February 2020.

Also Read: Will bears drag Nifty to 16800 amid high volatility, uncertainty? 5 things to know before market opening bell

Seven of 11 S&P 500 sector indexes fell, with utilities and consumer staples each down about 1.7% and leading declines. The energy sector index rallied 1.2% after Sweden launched a probe into possible sabotage after major leaks in two Russian pipelines that spewed gas into the Baltic Sea. Tesla gained 2.5% and Nvidia added 1.5%, with both companies helping keep Nasdaq in positive territory. Traders exchanged over $17 billion worth of Tesla shares, more than any other stock. The benchmark U.S. 10-year Treasury yield touched its highest level in more than 12 years amid the hawkish comments from Fed officials.

The Dow Jones Industrial Average fell 0.43% to end at 29,134.99 points, while the S&P 500 lost 0.21% to 3,647.29. The Nasdaq Composite climbed 0.25% to 10,829.50. Concerns about corporate profits taking a hit from soaring prices and a weaker economy have also roiled Wall Street in the past two weeks. Analysts have cut their S&P 500 earnings expectations for the third and fourth quarters, as well as for the full year. For the third quarter, analysts now see S&P 500 earnings per share rising 4.6% year-over-year, compared with 11.1% growth expected at the start of July.

Also Read: Reliance, HCL Tech, Dish TV, Torrent Pharma, Birla Corporation, IDBI Bank, Adani Group stocks in focus

Volume on U.S. exchanges was 11.7 billion shares, compared with an 11.3 billion average for the full session over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 1.25-to-1 ratio; on Nasdaq, a 1.03-to-1 ratio favored advancers. The S&P 500 posted no new 52-week highs and 146 new lows; the Nasdaq Composite recorded 28 new highs and 502 new lows.

Kanpur-based Lohia Corp files IPO papers with Sebi 

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Lohia Corp, manufacturer of machinery used in the production of technical textiles, has filed draft papers with capital markets regulator Sebi to garner funds through an Initial Public Offering (IPO). The IPO is entirely an Offer-For-Sale (OFS) of 31,695,000 equity shares by promoters and other shareholders, according to the Draft Red Herring Prospectus (DRHP) filed on Thursday.

The company expects that the proposed listing of its equity shares will enhance its visibility and brand image, provide liquidity to shareholders as well as provide a public market for the equity shares in the country. Kanpur-based Lohia Corp is the manufacturer of machinery and equipment used in the production of technical textiles, in particular for manufacturing polypropylene and high-density polyethylene woven fabric and sacks.

As of March 31, 2022, the company had a customer base comprising over 2,000 customers in over 90 countries globally. The company’s revenue from operations increased to Rs 2,237.48 crore for the financial year 2022 from Rs 1,333.79 crore for the financial year 2021, while profit after tax rose to Rs 160.85 crore from Rs 119.30 crore during the same period.

ICICI Securities, IIFL Securities, HSBC Securities and Capital Markets (India) Private Limited, and Motilal Oswal Investment Advisory are the book-running lead managers to the issue. The equity shares of the company will be listed on the BSE and NSE.

Plan for extra excise duty on unblended petrol, diesel deferred

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The finance ministry has postponed by a month the imposition of a proposed extra excise duty of Rs 2 per litre on petrol that is not blended with ethanol. Such an impost on diesel that is not mixed with bio-diesel has also been deferred by six months. The additional levy, proposed in the Budget for FY23, was to be applicable from October 1.

The latest move comes at a time when inflation remains uncomfortably high in the wake of the Ukraine war. Retail inflation inched up to 7% in August from 6.71% in the previous month. The decision will also give more time to oil firms to better prepare for its adoption and remove any supply bottlenecks of either ethanol or bio-diesel, which, in any case, is going to be a tall order, according to analysts.

Also Read: ATF price cut 4.5 pc, commercial LPG rates down Rs 25.5 

The Budget decision to promote blending was meant to cut India’s oil imports proportionately and somewhat reduce pollution. The country imports about 85% of its annual oil requirements. The greater use of ethanol will also boost earnings of farmers who grow crops like sugarcane.

Currently about 10% ethanol is blended with 90% petrol. However, there is only an experimental mixing of bio-diesel–extracted from non-edible oilseeds—with diesel.

According to the latest notification, “petrol which is intended for retail sale, not so blended with ethanol or methanol” will attract Rs 3.40 per litre basic excise duty effective November 1, 2022, instead of the current Rs 1.40. Similarly, branded petrol that is not blending with ethanol will attract an excise duty of Rs 4.60 a litre, against the current Rs 2.60.

As for diesel that is “intended for retail sale, not so blended with alkyl esters of long chain fatty acids obtained from vegetal oils, commonly known as bio-diesels” will attract a basic excise duty of Rs 3.80 per litre, against Rs 1.80. Branded diesel will attract Rs 6.20 a litre basic excise levy, instead of the current Rs 4.20.

In addition to the basic excise duty, cess and special additional excise duty are also imposed on petrol and diesel. The total incidence of excise on petrol stands at Rs 19.90 a litre and that on diesel at Rs 15.80.

Analysts have said the blending move will be difficult to implement in states where ethanol isn’t produced in large volumes. Moreover, building infrastructure in states to manufacture bio-diesel in adequate quantity, they have said.

The government last year advanced the target by five years to achieve 20% ethanol blending with petrol to 2025. The blending of 10% was realised earlier this year.

Sensex, Nifty snap 7-day losing streak after RBI hikes repo rate; Nifty eyes 17700 with support at 16850

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BSE Sensex and NSE Nifty 50 ended nearly 2 per cent higher, snapping a 7-day losing streak on Friday. Investors cheered the RBI MPC announcement of the repo rate hike. BSE Sensex ended at 57,427, up 1,017 points or 1.8 per cent. The NSE Nifty 50 ended at 17,094, up 276 points or 1.64 per cent. Stocks of index heavyweights such as Reliance Industries Ltd (RIL), HDFC Bank, ICICI Bank, Housing Development Finance Corporation (HDFC), and Bharti Airtel were among the top index contributors. Broader markets performed in line with equity frontliners. S&P BSE MidCap index gained 1.4 per cent or 341 points to settle at 24,853.94, while the S&P BSE SmallCap index added 1.45 per cent or 406 points to finish at 28,453.

Deepak Jasani, Head of Retail Research, HDFC Securities

Also read: Airox Technologies files Rs 750-cr IPO papers with Sebi

Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services

With most key events now behind, the market finally found some strength on Friday. After 7 consecutive falls, the Nifty witnessed a strong rally and closed with gains of almost 300 points. It also reclaimed the 17,000 zones, making the short-term technical view positive. Nifty can now move towards 17,500-17,700 zones with key support around 17,000 and 16850. Auto and consumption sectors would be in focus ahead of monthly sales data and high demand in the ongoing Navaratri festival. The Pharma sector is seeing some value buying as the market focused on defensive names in times of global uncertainty.

Amol Athawale, Deputy Vice President – Technical Research, Kotak Securities

What lifted the market sentiment was the RBI’s policy rate hike of 50 bps that came in as expected and its comment that India’s economy remains on strong footing despite global headwinds. The relief rally was backed by investors’ preference for growth-driving stocks from banking, automobile, realty & metal space. However, global macro factors will continue to dictate the domestic market sentiment going ahead as any fresh spell of negative news could once again trigger the downward spiral. Technically, after a sharp selloff, the Nifty took support near 16800 and bounced back sharply. On daily charts, the index has formed a long bullish candle, and also formed a promising Hammer candlestick formation on weekly charts which is broadly positive. For the trend following traders, the 200- day SMA (Simple Moving Average) and 16900 would act as a sacrosanct support zone. Above the same, the reversal wave is likely to continue till 17250. Further upside may also continue which could lift the index till 17400. On the flip side, below 16900, the uptrend would be vulnerable and on the further decline, the index could slip till 16800-16700.

Also read: System ready for tokenisation as 35 cr cards tokenised: RBI

Vinod Nair, Head of Research, Geojit Financial Services

An in-line rate hike along with the RBI’s confidence in the economy’s growth momentum aided the domestic market to alter the seven-day losing streak. The decision to retain inflation at 6.70% with a marginal cut but a healthy GDP forecast of 7.0% indicates the resilience of the Indian economy. Although the commentary warned about prevailing risks to the domestic economy from the global economy, the MPC refrained from sounding very hawkish. Continuation of the policy stance as ‘withdrawal of accommodation’ indicates more rate hikes in the future, but is data-driven.

Rupee likely to depreciate on strong dollar, elevated crude prices; USDINR pair to trade in this range

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The Indian Rupee is likely to depreciate to 80 in coming sessions amid strength in dollar, volatility in equity markets, US Fed rate hike and inflation concerns. Rupee has fallen 6.51% against the US dollar so far in 2022. In comparison, Australian dollar has declined 7.5%, Pakistani rupee fell 23.77%, and Japanese Yen slipped 19.79% against the greenback YTD. On Tuesday, Chief Economic Advisor V Anantha Nageswaran had said that India is not defending rupee, and that the Reserve Bank of India is taking necessary steps to ensure that the movement of the rupee is gradual and in line with market trends. Rupee is being managed in a manner that reflects the fundamentals of the economy, he added.

Dilip Parmar, Research Analyst, HDFC Securities

Also Read: Share Market LIVE: Nifty, Sensex stare at positive start; Tamilnad Mercantile shares to debut on bourses today

“The pair is trading within the range of 79.90 to 79.10 with rising volatility indicating consolidation before a directional trend. The confidence in positioning coming back from foreign institutions as the accelerated buying in the domestic equities after the worst sell-off in the last couple of months. The 5-day moving average of net foreign inflows increased to $289.4 million, rising above the 20-day average of $269.2 million, according to data from the Central Depository Services (India) Ltd.”

Anuj Choudhary – Research Analyst, Sharekhan by BNP Paribas

“Indian rupee depreciated by 0.38% yesterday on strong US Dollar and deteriorating global risk sentiments. US Dollar surged as US CPI rose unexpectedly to 8.3% y-o-y in August compared to expectations of 8.1% while core CPI increased to 6.3% y-o-y in August compared to expectations of 6.1%. This raised expectations of yet another aggressive rate hike by FOMC in its September meeting. Apart from increased odds of a 75 bps rate hike, there are talks of even a 100 bps rate hike.”

“We expect Rupee to trade with a negative bias amid risk aversion in global market worries that the US Federal Reserve may be more hawkish than previously expected. Investors may also take cues from PPI data from US today. However, India’s WPI inflation eased to a 11-month low of 12.41% in August which may support Rupee at lower levels. USDINR spot price is expected to trade in a range of Rs 78.80 to Rs 80 in next couple of sessions.”

Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities

“USDINR spot closed 79.44, up 30 paise, due to strong rally in US Dollar Index and sell-off in equities. However, RBI intervention and FPI flows may have capped the advance beyond 79.60. The sharp drop in the forward premium could be a sign of RBI selling in forwards. Post US CPI, odds of a 100-bps hike next week has increased. These odds can keep USDINR supported till Fed meeting. We expect a range of 79.20 and 79.80 on spot.”

Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors

“USDINR to open flat at 79.50 as the dollar index is at 109.72 US 10-year yields at 3.42 oil is $ 94 per barrel. Asian currencies are still on the weaker side against $ which will not allow the rupee to gain much against the dollar. The range for the day is expected between 79.30 to 79.80 as the market braces in for a 75 bps rate hike by FED on 21st. India’s trade deficit was higher though export figures were also revised to slightly higher. Trade deficit still remains a matter of concern for the country. Exporters to sell above 79.80 while importers to buy below 79.30.”

Also Read: Bulls may attempt a comeback to push Nifty above 18100; 5 key things to know before market opening bell

(The recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

Simpl announces Diwali sale featuring products from D2C merchants nationwide

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Simpl, checkout services provider, announces its ‘Crazy Desi Diwali sale’ from October 28th to November 2nd, 2023, to make available lakhs of products from D2C brands for millions of customers across the country.

This festive extravaganza aims to provide lakhs of products and services, ranging from fashion to footwear and electronics to home decor, from over 80 homegrown D2C merchants to millions of consumers across 100% of the serviceable pin codes across the country in an affordable manner. Customers looking to avail these benefits can visit Simpl’s mobile app to get access to the products and services on sale, where they will be redirected to the merchant’s platform with the discount already applied, enabling customers to save up to Rs 6,000 on their products and brands.

“The behaviour of Indian consumers has undergone a sea change over the last few years with a growing demand for niche products which fulfil their diverse requirements. This trend is panning out across categories – from fashion to footwear and electronics to Home decor where D2C merchants have become the preferred choice for customers. With the onset of the festive season, it becomes even more important to empower these merchants to cater to their customers’ evolving needs. As an organisation, Simpl is at the forefront of supporting merchants across the country through its technological platform and properties such as the Crazy Desi Diwali Sale, which enables them to showcase their wide selection of products to millions of consumers across the country, ”Khanaz K.A, CXO, Simpl, said.

Simpl, which has over 26,000 merchants and millions of customers across the country, has been actively working towards empowering the D2C landscape in India through its AI-led offerings such as the Checkout Network, Checkout Suite and D2C Simplified community. The community counts thousands of D2C merchants across the country including smaller cities such as Surat, Indore as its members.

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Deltatech Gaming, Pristine Logistics get Sebi’s go-ahead to float IPO

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Deltatech Gaming Ltd and Pristine Logistics & Infraprojects Ltd have received Sebi’s go-ahead to raise funds through an initial public offering (IPO).

The two companies, which filed their preliminary IPO papers with Sebi during May and June, obtained its observation letter on September 30, an update with the markets watchdog showed on Monday.

In Sebi’s parlance, its observation implies its nod to launch an IPO.

Going by the draft papers, Deltatech Gaming’s Rs 550-crore IPO comprises fresh issue of equity shares worth up to Rs 300 crore and an offer-for-sale (OFS) of Rs 250 crore by promoter Delta Corp Ltd.

Proceeds worth Rs 150 crore from the fresh issuance will be utilised for organic growth through marketing and business promotion activities, to attract new gamers and retain the existing ones, Rs 50 crore will be used for strengthening the technology infrastructure to develop new capabilities, maintain and manage its existing platform and general corporate purposes.

The Gurugram-based company is one of the earliest companies in the real money gaming segment in India. Over the years, the digital gaming company has developed its own platforms, which it continues to evolve.

Pristine Logistics & Infraprojects’ initial share-sale comprises fresh issuance of equity shares worth Rs 250 crore and an OFS of 20,066,269 equity shares by promoters and existing shareholders, according to the Draft Red Herring Prospectus (DRHP).

Proceeds from the fresh issuance will be used to repay debt and for general corporate purposes.

Also Read| Rupee likely to consolidate in near-term, may fall to 83 level, if 82 breached amid global uncertainty

Pristine provides logistics infrastructure and services, pivoted around rail transportation networks. It also offers synergetic logistics infrastructure and services across the spectrum, including non-container, container, rail transportation and road transportation services.

It also helps in areas such as integrated logistics solutions by offering warehousing, storage and cargo handling, rail transportation, road transportation, and third-party logistics (3PL) services and identifies these services as the company’s key revenue streams.

Equity shares of both companies will be listed on BSE and NSE.

Meanwhile, Mukka Protein, which filed its IPO papers with Sebi in March this year, withdrew its DRHP on September 27, an update with Sebi showed.

The company is engaged in manufacturing of fish meal, fish oil and fish soluble paste which is widely used as a raw material in aqua feed, poultry feed, soap manufacture, leather tanneries and paint industries globally.

US Stocks: Futures bounce after brutal Wall Street selloff

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US stock index futures jumped about 1% on Tuesday, following a bruising selloff over the last few sessions on rate-hike induced recession fears that confirmed the Dow has been in a bear market for most of this year.

If gains hold till the open, the three major stock indexes will snap a five-day losing streak, with rate-sensitive growth shares leading the advance in premarket trading.

Oil stocks got a shot in the arm after a sharp recovery in crude prices, with Exxon and Chevron up 1.4% each.

At 6:59 a.m. ET, Dow e-minis were up 273 points, or 0.93%, S&P 500 e-minis were up 42.25 points, or 1.15%, and Nasdaq 100 e-minis were up 152.5 points, or 1.35%.

Also read: India defers govt bond index inclusion to next year; $30 bln opportunity pushed back due to operational issues

Concerns about corporate profits coming under pressure from soaring prices, an economic downturn and higher interest rates have roiled Wall Street in the past two weeks, pushing the S&P 500 to new closing lows for the year on Monday.

Analysts have cut their S&P 500 earnings estimates for the third and fourth quarters, and for all of 2022. For the third quarter, overall S&P 500 earnings are seen rising just 4.6% year-over-year, compared with the 11.1% growth expected at the start of July.

US Federal Reserve officials on Monday sloughed off rising volatility in global markets, from slumping US stocks to currency turbulence abroad, and said their priority remained controlling domestic inflation.

Chicago Fed President Charles Evans said the central bank will need to raise interest rates by at least another percentage point this year, highlighting the Fed’s combative stance to quash too-high inflation.

Also read: MCX Crude oil October futures may rise to Rs 6800/bbl this week; medium-term fundamentals still remain bearish

Analysts at Wells Fargo now see the US central bank taking its target range for the Fed funds rate to 4.75%-5.00% by the first quarter of 2023.

Later in the day, investors will be watching for August durable goods orders, as well as consumer confidence data for the month.