RIL Q2 profit to ride on petchem margins

Reliance Industries’ consolidated net profit is likely to increase to Rs7,282.5 crore on a revenue of Rs63,669.9 crore for the three months ended 30 September


In the year-earlier quarter, Reliance Industries reported a consolidated net profit of Rs6,720 crore and revenue of Rs75,117 crore. Photo: Reuters
In the year-earlier quarter, Reliance Industries reported a consolidated net profit of Rs6,720 crore and revenue of Rs75,117 crore. Photo: Reuters

Mumbai: Reliance Industries Ltd (RIL) is likely to report an increase in its quarterly profit, as stronger petrochemical margins offset weaker earnings from its refining business. 

Consolidated net profit is likely to increase to Rs7,282.5 crore on a revenue of Rs63,669.9 crore for the three months ended on 30 September, according to a Bloomberg poll of six analysts. In the year-earlier quarter, the company reported a consolidated net profit of Rs6,720 crore and revenue of Rs75,117 crore.

RIL will announce its second-quarter earnings on Thursday. 

“After six consecutive sequential earnings increases, we expect RIL’s standalone earnings to moderate 2% quarter-on-quarter (QoQ), mainly due to weaker refining. But, RIL may surprise again. We expect another record petchem EBIT,” said Nomura Research in a 7 October note to clients. 

Ebit stands for earnings before interest and taxes and is an indication of a company’s profitability. 

RIL’s refining and marketing business, which accounts for over 75% of revenue and more than 60% of profit, could be hurt due to lower refining margins.

Analysts expect RIL’s gross refining margin (GRM) to be $9.5-10 per barrel. GRM is the realization from turning every barrel of crude oil into finished products. “We estimate GRM to be down 10% QoQ (quarter on quarter) while throughput 7% higher QoQ following a restart of special economic zone crude distillation unit after 20 days maintenance shutdown in May 2016. Refining EBITDA will therefore fall 6% QoQ,” said Edelweiss Research in a 5 October report. 

During the September quarter, Singapore GRM averaged at $5.1 per barrel compared with $5 in the preceding three months.

“We expect RIL to report a $10 GRM versus $11.5 in 1Q, the latter including $2 of hedging & inventory gains,” said Citi Research in its report dated 4 October. 

Earnings from the petrochemicals segment, however, are expected to rise on higher volume and wider margins. 

“We expect petchem earnings to show strong growth led by higher volumes (some expansion projects are gradually reflecting in earnings) and improved spreads in the polymer chain,” said IDFC Securities in a report dated 5 October. 

On the exploration and production (E&P) front, which includes domestic assets and US shale gas assets, the second quarter could also be a loss-making one for RIL as crude oil and domestic gas prices are lower compared to last year. Production from the KG block is also expected to be lower. 

“RIL is likely to report losses in a small EBIT profit on domestic E&P. US shale will continue to remain loss-making. Crude oil and domestic gas prices are lower year-on-year. KG D6 production is expected to be down 3% year-on-year,” said Bank of America Merrill Lynch in a report dated 10 October. 

Though RIL launched its telecom services on 5 September, the numbers are not likely to be included in September quarter. 

“We do not expect the company to account for Jio in its consolidated results despite its launch in September as it is currently being offered to customers for free. The company reported 16 million subscribers at the end of September but without customers being charged, genuine momentum is difficult to gauge in our view,” said Jefferies Equity Research in its report dated 10 October. 

RIL shares rose 0.7% to Rs1,086.90 on BSE; the benchmark Sensex shed 0.24% to 27,984.37 points.

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