BackRIL seen posting a record profit, riding on strong refining margins
Analysts expect the company to report a standalone profit of Rs7,010.8 crore on sales of Rs57,279.2 crore
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Mumbai: Reliance Industries Ltd (RIL) may post a record profit for the quarter ended 31 December on the back of strong margins from its core business of crude oil refining.
The refining business of India’s largest private enterprise, which operates the world’s biggest refiner at Jamnagar in Gujarat, accounts for 66% of its overall profit and 70% of revenue.
16 analysts surveyed by Bloomberg expect RIL to report a standalone profit of ₹ 7,010.8 crore on sales of ₹ 57,279.2 crore.
RIL, which owns businesses ranging from petroleum refining, chemicals, oil and gas exploration to retail, posted a standalone net profit of ₹ 5,085 crore on net sales of ₹ 80,196 crore in the year earlier December quarter.
“We forecast RIL to report near record earnings for 3QFY16, essentially driven by refining, with reported GRMs possibly above $11/bbl (per barrel)," a 11 January JP Morgan report said.
GRM is the difference in the average price of crude oil consumed and the average price of the products produced from refining.
The oil and gas sector is likely to report strong refining margins in the third quarter with some threat from inventory losses, which could reduce the benefit, according to a JM Financial report on 11 January.
“We expect RIL to report record quarterly profits driven by strong refining. Singapore complex margins have been strong and we expect RIL’s premiums to remain strong, driven by high crude price differentials and discounts by Middle East producers," wrote Nomura analysts Anil Sharma and Ravi Adukia in their 12 January report.
They also expect exploration and production profitability to be impacted by a 18% reduction in domestic gas price to $4.2 per mmbtu from 1 October and weaker oil prices. “Singapore complex margins were strong. We expect RIL’s premiums to remain strong driven by high crude price differentials and discounts by middle-east producers," Sharma and Adukia of Nomura wrote.
RIL typically reports a GRM of $2-3 per barrel above the Singapore complex GRM.
Its GRMs are likely to strengthen sequentially (quarter-on-quarter) to about $11 per barrel in the third quarter from $10.6 in the preceding three months, in sync with improvement in benchmark Singapore margins to $8, according to Antique Stock Broking.
However, the petrochemical (petchem) segment could report weaker earnings as petrochemical prices declined sequentially, along with crude oil prices, it cautioned.
“In addition, due to stronger naphtha prices, the petchem margins also suffered a contraction. As a result, we estimate 3Q petchem EBIT (earning before interest and tax) at ₹ 2,150 crore (margin: 11.5%), compared to ₹ 2,500 crore (12.7%) in 2QFY16," the brokerage noted.
The petrochemicals operations have the second biggest share, contributing around 30% to overall revenue and net profit.
Citi Research, a division of Citigroup Global Markets Inc., in its report dated 8 January, said that RIL should report its fourth successive $10+ GRM quarter, with third quarter GRMs likely to top $11 for the first time in seven years.
Combined with higher refining throughput and marginal petchem weakness, Citi expects standalone profit after tax at ₹ 6,880 crore.
Analysts at brokerage firm Jefferies India Pvt. Ltd, in a 5 January note, said RIL will have a strong quarter driven by the refining segment.
It also said that commentary by RIL management on the developments in its telecom unit Reliance Jio Infocomm Ltd and downstream projects will be watched.
Jio is the brand of fourth-generation (4G) mobile-phone services being launched by Reliance Jio.
In April, RIL said it was investing $14 billion, or around ₹ 85,000 crore, in the telecom venture.
Reliance Jio, which has consistently belied analyst and media expectations of the commercial launch date, is primarily banking on convincing existing and potential users that its voice-over-LTE network will deliver a much better voice and data service than its rivals. LTE is short for long-term evolution, a mobile telephony technology standard.
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