Mumbai: Oil-to-yarn and retail conglomerate Reliance Industries Ltd (RIL) is likely to post a strong sequential growth in net profit riding a rebound in global refining margins, though year-on-year (y-o-y) growth in profitability will remain muted in the second quarter of fiscal 2013, analysts said.
The Mukesh Ambani-led conglomerate will report its earnings for the quarter ended 30 September on Monday.
A consensus of RIL’s earnings estimates by various brokerages compiled by Bloomberg pegs the firm’s net profit at Rs.5,239 crore, up 17.13% sequentially but down 8.13% y-o-y. It pegs sales at Rs.95,129 crore, up 21.08% over a year ago.
Nomura and ICICI Securities Ltd expect the quarter-on-quarter (q-o-q) rise in RIL’s net profit to be higher than Bloomberg’s consensus estimate at around 20%.
The earnings preview reports of seven brokerages, reviewed by Mint, suggest RIL’s gross refining margin (GRM)—the difference between the cost of processing crude and the revenue from selling finished petroleum products—will rise significantly q-o-q and help offset comparatively weaker earnings from its petrochemicals and exploration and production (E&P) business.
Nomura expects RIL to report a GRM of $10.1 a barrel for the September quarter, up 32% from the preceding quarter. This growth is in line with the rise in the Singapore GRM, a regional benchmark, which surged 37.5% in the same period to average $9.13 a barrel during the last quarter.
A 4 October Religare Capital Markets Ltd report states that the q-o-q improvement in regional GRMs was led by an improvement in margins on the sale of products such as diesel (likely to benefit RIL the most), kerosene, petrol and naphtha. The improvement in overall refining margins was a result of “high refinery outages, especially in Asia, coupled with supply disruptions in Venezuela and Gulf of Mexico”, according to an 8 October report by ICICI Securities.
Throughout 2011-2012, RIL’s quarterly net profit saw y-o-y declines of 16-21%, including in the first quarter of this fiscal.
Motilal Oswal Securities Ltd expects RIL’s September quarter net profit to be only 3% lower over last year’s, and estimates the firm to report y-o-y rise in net profit in the next couple of quarters.
According to analysts, RIL’s refining business will shine but its petrochemicals business and falling natural gas output will weigh on the firm.
“Petrochemical margins have remained largely muted during the quarter on lacklustre demand, primarily from China, with an inventory build-up at the producers’ end,” the Religare report notes. “An increase in naphtha prices and cheaper exports from the US made matters worse for naphtha crackers in Europe and Asia.”
ICICI Securities says segment profit from RIL’s petrochemicals business is expected to remain flat on a quarterly basis.
Falling gas output from RIL’s D6 field in the Krishna Godavari basin will affect revenue and profitability of the company’s E&P business.
Nomura forecasts gas production from D6 to fall to 28 million standard cu. m per day (mscmd) in the September quarter from 32.5 mscmd in the June quarter and 45.3 mscmd in the year-ago period.
Sentiments on the company’s future prospects as well as its stock price improved in the September quarter with some positive news on the company.
The oil ministry’s decision to grant conditional approvals to some of RIL’s key, long-pending work plans for upstream oil exploration and production, hinted at some sort of reconciliation between the regulator and the company, which have had frequent run-ins otherwise.
In the September quarter, RIL’s share prices appreciated 13.46% on BSE, while the exchange’s benchmark index, Sensex, rose 7.65%.
On Thursday, RIL’s share price rose 0.41% on BSE to close at Rs.819.50 a share. The Sensex gained 0.93% to end at 18,804.75 points.