Mumbai: Reliance Industries Ltd (RIL) is likely to report an increase in quarterly profit in its September quarter (Q2) results to be declared today, driven by better margins from mainstay petrochemical business and fast-growing verticals Reliance Jio Infocomm Ltd and Reliance Retail, analysts have said. These will offset RIL’s weak gross refining margins in the quarter. According to a Bloomberg poll of seven brokers, RIL's consolidated net sales is expected to come in at ₹ 1.41 trillion; net profit is estimated at ₹ 9,630.20 crore by 10 brokers.
"Earnings to rise 15% year-on-year, stable quarter-on-quarter—modest quarter-on-quarter decline in refining and chemicals offset by growth in Reliance Jio and Reliance Retail," said Macquarie Research in its report dated 8 October. According to the market research firm, refining segment’s operating profit will decline 30% year-on-year, due to lower product cracks, tighter crude differentials, and a temporary fluid catalytic cracker (FCC) shutdown.
As a result, gross refining margins (GRMs) are expected to be soft and come in between $10-10.2 per barrel. Gross refining margins is what a refiner earns by turning crude oil into final products.
RIL’s GRM, which was $12 per barrel in the September quarter of 2017-18, fell to $10.5 per barrel in the first quarter of 2018-19. In Q2, the benchmark Singapore Complex GRM rose from $6.0 to $6.2, led mainly by higher fuel oil cracks. RIL, however, does not produce fuel oil at its Jamnagar refinery in Gujarat. The facility, the world’s single largest oil refinery, can process 1.24 million barrels of oil per day.
"We expect RIL's GRM to come in at $10 per barrel, down $0.05 a barrel compared of the last quarter. While product margins should come in flat," said Goldman Sachs Equity Research in a report dated 10 October.
On the petrochemicals front, analysts expect RIL’s operating profit to be in double digits—mainly driven by higher sales volume and help from rupee depreciation.
During the July-September quarter, RIL had raised prices of its key petrochemical products to offset higher crude oil prices and counter the effect of a weakening rupee. Bulk chemicals traders, suppliers for RIL’s petrochemical products and analysts tracking the company said it raised prices by 10-21% in Q2 2018-19 while year-on-year increase is 17-61%.
In the September quarter, the rupee fell 5.55% while crude oil prices rose 1.58%.
On the telecom front, Morgan Stanley expects Reliance Jio to have added about 35 million subscribers in Q2. Average revenue per user (ARPU) was seen declining by 2% quarter-on-quarter, leading to 13% quarterly revenue growth. “Some increase in opex (operating expenditure) could compress the earnings before interest, taxes, depreciation and amortisation (ebitda) margin, but we expect 10% quarter-on-quarter ebitda growth," said Morgan Stanley research in a report dated 9 October.
Ebitda is the measure of operating profit of a company.
Reliance Retail, meanwhile, is expected to have grown 7% quarter-on-quarter in Q2—with stable margins and over 4% operating profit. Reliance Retail is India’s largest retailer by revenues.
On the exploration and production front, RIL will continue to lag and is expected to report losses, analysts said.