RIL Q3: Strong refining margins may offset petchem weakness

Reliance Industries petrochemical business is estimated to report a drop in EBIT on overall weaker margins, planned shutdown and impact of demonetization


Analysts expect RIL’s gross refining margin to be between $10.5 per barrel and $11.5 per barrel.
Analysts expect RIL’s gross refining margin to be between $10.5 per barrel and $11.5 per barrel.

Mumbai: Reliance Industries Ltd (RIL) is likely to report a gain in quarterly profit as a strong performance in its refining business may help offset weaker petrochemical margins. 

Net profit, excluding those of its units, may increase to Rs7,842 crore on a revenue of Rs65,752.6 crore for the three months ended 31 December, according to a Bloomberg survey of 11 analysts. In the year-ago quarter, the company reported a profit of Rs7,218 crore on revenue of Rs56,567 crore. 

RIL will announce its third-quarter earnings on Monday. 

At 9.15am, RIL was trading at Rs1,091.40 on BSE, up 0.11% from previous close while India’s benchmark Sensex Index rose 0.01% to 27,238.35 points.

“We expect this to be the eighth consecutive sequential earnings increase. Strong refining should more than offset the likely weaker pet-chem segment (weaker margins, and likely impact of demonetization),” Nomura Research said in a 5 January note to clients. 

Analysts expect RIL’s gross refining margin (GRM) to be between $10.5 per barrel and $11.5 per barrel. GRM is the realization from turning every barrel of crude oil into finished products. 

“Reliance’s GRM is likely to improve by a more modest $0.7 per barrel to $10.8 per barrel in third quarter due to a five-week maintenance shutdown in one of its fluid catalytic cracking units and sharper improvement in gasoline and fuel oil cracks relative to middle distillate cracks,” brokerage Jefferies India said in a 4 January note. 

During the quarter, benchmark Singapore complex margins increased by $1.5 per barrel sequentially to $6.7 per barrel. 

RIL’s petrochemical business is estimated to report a drop in EBIT on overall weaker margins, planned shutdown and impact of demonetization. EBIT stands for earnings before interest and taxes and is an indication of a company’s profitability. 

“Petchem will be impacted by demonetization and lower spreads. Consequently, we estimate EBITDA to dip 6% quarter-on-quarter,” Edelweiss Securities said in a 6 January note. 

During the December quarter, RIL commissioned the first phase of its paraxylene capacity. Analysts expect RIL’s new refining and petchem projects to add to earnings from the second half of FY18-19

On the exploration and production front, RIL is likely to report a small loss. “US shale will continue to remain loss-making. Crude oil prices are higher year-on-year but domestic gas prices are lower. KG D6 production is expected to be down 24% on a YoY (year-on-year) basis. US shale is consolidated with one quarter lag,” Bank of America Merrill Lynch said in a report dated 9 January. 

Analysts expect the company’s telecom business to be a drag on profitability. RIL launched its telecom operations commercially on 5 September. 

Post its second-quarter results announcement on 20 October, RIL said the company will be investing an additional Rs1 trillion in its telecom venture. RIL has so far invested Rs2 trillion in the venture. Reliance Jio Infocomm Ltd (RJio), which launched an inaugural free voice and data plan beginning 5 September, extended it beyond December till 31 March. 

“Over the past one month, competitive intensity has picked up, as incumbent telecom companies have started to offer higher data for free for 4G subscribers and effectively brought down pricing. For RJio, while the number of subscribers it starts operations with is critical, we would also focus on the absolute level of ARPU (average revenue per user). If RJio is able to maintain average ARPUs above Rs300 per consumer, it would be a positive,” said JP Morgan, in a report dated 6 January. 

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