Margin worries drag down Reliance Industries, Axis Bank
Reliance Industries stock that has underperformed market in past month lost 3% while Axis Bank declined 5% on Monday.
By ET Bureau |
MUMBAI: India’s largest refiner Reliance Industries (RIL) and India’s third-largest private sector lender Axis Bank plunged since their earnings prospects dimmed, following their fourth-quarter earnings that showed pressure on profitability may remain.
Reliance Inds, the most-valuable company, tumbled 3% to Rs 1,009.30 and Axis Bank fell 5% to Rs 1,377.15. “The petrochemical segment is facing margin pressure due to capacities coming up in the Middle East and China,” said Rina Sanghavi of VCK Share and Stock Brokers in a note, after cutting rating to ‘reduce’ on the stock. “Despite the strong margins in polypropylene , polyester and rubber segments during the March quarter, RIL could maintain margins only at the year-ago level. In such a scenario, any slowdown in refinery margins could mean stagnancy in its quarterly profit growth.”
Reliance Industries’ March net profit was below market expectations as gross-refining margins were lower than expected at $9.2 per barrel. GRMs were impacted as fluidised catalytic cracking unit was shut for 46 days. The stock has underperformed the market over the past one month (till April 21, 2011) gaining just about 1.62% compared with the Sensex’s 9% rise.
Meanwhile, Axis Bank tumbled close to 5% to Rs 1,377.15 after the bank’s net interest margin slipped to 3.44% in Q4 of March 2011 from 3.81% in Q3 of December 2010 due to a sharp spike in the cost of funds. “Pressure on NIM was largely due to the sharp rise in cost of wholesale deposits between December-March 11,” says Punit Srivastava, deputy Head-Research at Daiwa Capital. He, however, is of the view that pressure on earnings for the entire FY12 is unlikely to be significant as he expects NIM to bounce back from H2FY12 and credit costs to come down.
Reliance Inds, the most-valuable company, tumbled 3% to Rs 1,009.30 and Axis Bank fell 5% to Rs 1,377.15. “The petrochemical segment is facing margin pressure due to capacities coming up in the Middle East and China,” said Rina Sanghavi of VCK Share and Stock Brokers in a note, after cutting rating to ‘reduce’ on the stock. “Despite the strong margins in polypropylene , polyester and rubber segments during the March quarter, RIL could maintain margins only at the year-ago level. In such a scenario, any slowdown in refinery margins could mean stagnancy in its quarterly profit growth.”
Reliance Industries’ March net profit was below market expectations as gross-refining margins were lower than expected at $9.2 per barrel. GRMs were impacted as fluidised catalytic cracking unit was shut for 46 days. The stock has underperformed the market over the past one month (till April 21, 2011) gaining just about 1.62% compared with the Sensex’s 9% rise.
Meanwhile, Axis Bank tumbled close to 5% to Rs 1,377.15 after the bank’s net interest margin slipped to 3.44% in Q4 of March 2011 from 3.81% in Q3 of December 2010 due to a sharp spike in the cost of funds. “Pressure on NIM was largely due to the sharp rise in cost of wholesale deposits between December-March 11,” says Punit Srivastava, deputy Head-Research at Daiwa Capital. He, however, is of the view that pressure on earnings for the entire FY12 is unlikely to be significant as he expects NIM to bounce back from H2FY12 and credit costs to come down.
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