Mumbai: Non-core or other income may again help oil-to-yarn conglomerate Reliance Industries Ltd (RIL) post a higher profit for the December quarter from a year earlier, say analysts.
But profits may drop over the preceding three months because of the poor performance of its oil refining business, they said.
RIL’s third-quarter profit is estimated to increase 14.4% year-on-year to Rs.5,079 crore on a 6.45% rise in revenue to Rs.90,622 crore, according to a consensus of analysts’ estimates compiled by Bloomberg.
RIL will report its quarterly earnings on 18 January.
The earnings preview reports of seven brokerages reviewed by Mint show RIL’s quarterly profit growing at 12-14.8% over a year earlier, but declining by 5-7% from the trailing quarter.
Bank of America-Merrill Lynch, in a report dated 7 January, estimates RIL’s year-on-year net profit growth at 14%, driven by other income that is expected to be 31% higher than in the year-ago period.
In the quarter ended 31 December 2011, RIL reported other income of Rs.1,717 crore, which accounted for 38.67% of its after-tax profit.
Motilal Oswal Securities Ltd estimates the contribution of other income to RIL’s net profit to rise to around 45% for the latest December quarter.
Greater contribution of core businesses to operating profit and a substantial sequential rise in net profit in the trailing September quarter had enthused analysts earlier, overshadowing even a year-on-year decline in the net profit.
In the latest December quarter, however, an overall weakness in the refining business is expected to take its toll on RIL’s refining margin and reduce profits sequentially. The oil and gas production business, too, is estimated to have performed poorly.
To be sure, RIL’s refining margin is expected to outperform the benchmark Singapore gross refining margin (GRM) as RIL does not produce fuel oil—a major constituent of the Singapore GRM and whose margins fell sharply between October and December.
Many analysts expect RIL to report a GRM—the difference between the value of petroleum products sold and the cost of processing crude—of $8.5-8.6 a barrel for the December quarter. RIL had reported a GRM of $9.5 a barrel in the trailing quarter. The Singapore GRM fell sharply to $6.4 a barrel in the same quarter from $9 in the September quarter.
GRMs weakened across the board in the third quarter of the current fiscal year due to “softness in the product slate,” analysts Slok Deshpande and Stuart Murray of Elara Securities (India) Pvt. Ltd, the Indian arm of a UK-based brokerage, said in a 9 January report.
Margins in products like petrol continued to decline “following seasonal low demand amid increased supplies, as refineries returned from maintenance,” they wrote.
Bank of America-Merrill Lynch also expects operating profit from the petrochemicals and hydrocarbons exploration and production businesses to fall 14% and 39%, respectively, as compared to a year ago.
Production from RIL’s D6 gas reservoir in the Krishna-Godavari basin, off the eastern coast of India, is expected to have declined to an average of 24 million standard cubic meter per day in the December quarter, ICICI Securities Ltd said in a 2 January report.
Falling gas output from the D6 field has been a cause of concern for RIL over the last two years and responsible for dragging its earnings.
One of the reasons for RIL’s high other income is also the proceeds it got from London-based BP Plc., to which it offloaded a 30% stake in 21 oil and gas blocks in India for $7.2 billion. The deal was completed in August 2011.
At the end of September, RIL had Rs.79,159 crore of cash and cash equivalents on its books. The Mukesh Ambani-led conglomerate is in the middle of implementing a $12 billion capital expenditure plan to augment capacity across its petrochemicals and refining businesses.
Over the last year, RIL’s stock price has soared 18.57% on BSE, while the Sensex gained 23.72%. On Wednesday, RIL rose 1.72% to Rs.860.40 a share on BSE while the Sensex lost 0.85% to close at 19,817.63 points. The BSE Oil&Gas Index gained 0.43% to end at 9,003.99 points.