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RIL’s gross refining margin (GRM)—or the difference between the selling price of finished petroleum products and the cost of processing crude, a key indicator of profitability from RIL’s refining business—is expected to have risen by $1.5 a barrel to an average $9.1 in the March quarter, according to a 7 April report by Barclays Capital Inc.
RIL’s gross refining margin (GRM)—or the difference between the selling price of finished petroleum products and the cost of processing crude, a key indicator of profitability from RIL’s refining business—is expected to have risen by $1.5 a barrel to an average $9.1 in the March quarter, according to a 7 April report by Barclays Capital Inc.

Marginal rise in RIL net profit expected in March quarter

Weaker petchem margins, lower crude volumes likely to offset earnings from higher refining margins, gas production

Mumbai: Reliance Industries Ltd (RIL) is expected to post a marginal rise in net profit for the quarter ended 31 March with earnings from higher refining margins and gas production being offset by weaker petrochemical margins and lower crude refining volumes.

The Mukesh Ambani-led firm will announce its fourth-quarter earnings on 18 April.

A Bloomberg poll of 24 analysts on RIL’s earnings pegs March quarter net profit at 5,630 crore, 0.7% higher than in the same period a year earlier and 2.1% higher than in the October-December period. Revenue is expected at 1.01 trillion, 20% higher than a year ago, but 2.4% lower quarter-on-quarter.

RIL’s gross refining margin (GRM)—or the difference between the selling price of finished petroleum products and the cost of processing crude, a key indicator of profitability from RIL’s refining business—is expected to have risen by $1.5 a barrel to an average $9.1 in the March quarter, according to a 7 April report by Barclays Capital Inc. This represents a 20% rise in refining margins.

On the lower end, BNP Paribas Securities (Asia) Ltd, in a 7 April note, estimated RIL’s gross refining margin at $8.5 a barrel for the March quarter.

The rise in RIL’s GRM is expected to be in line with the regional benchmark Singapore GRM, which is expected to move from $4.3 per barrel in the October-December quarter to $6.5 in the January-March period.

During the March quarter, refining margins strengthened due to “spot demand (for petrol) from Vietnam and expectation of lower number of petrol cargoes from the US in preparation for the upcoming driving season", analysts Mehul Thanawala and Garima Mishra of JM Financial Institutional Securities Pvt. Ltd said in a 9 April report.

Naphtha margins improved sequentially due to robust Asian demand as well as volatile prices of liquefied petroleum gas (LPG). LPG margins were strong due to heating demand on record low temperatures in the US.

The improving margins of these products and stability in the margins of middle-distillate products such as diesel, kerosene and jet fuel pushed the overall benchmark margins higher and benefited RIL as well.

The higher refinery margins, however, are likely to be partially offset by an 11-day maintenance shutdown at one of RIL’s crude distillation units at its Jamnagar refinery in Gujarat, which meant it could process lesser crude in the March quarter than usual.

The other potential dampener could be weak petrochemical margins. “Petchem margins softened again due to declines in polyester intermediate margins, offsetting the impact of higher PP (polypropylene) and PVC (polyvinyl chloride). Overall, we model a 3% quarter-on-quarter decline in Reliance’s petrochemical margins in 4Q (March quarter)," Barclays said.

The JM Financial report attributed the sequential weakness in the margins of some of the petrochemical products to regional oversupply and weak demand.

A positive outcome for RIL from its March quarter earnings is likely to be the around 11% increase in gas output from its D6 gas reservoir in the Krishna-Godavari basin. After continuously declining for the last two years, gas production from D6 is expected to rise to around 13.9 million standard cu. m per day.

“Overall, we estimate the E&P (exploration and production) division to report an Ebit (earnings before interest and tax) of around 530 crore, (15% higher year-on-year, but 2% lower sequentially)," analysts Vinay Jaisingh and Rakesh Sethia of Morgan Stanley Research Asia/Pacific said in a 10 April report.

The likely sequential decline in profitability from the E&P segment is because of a one-off inventory gain that RIL received in the second quarter of fiscal 2014.

RIL’s shares rose 1.88% to 958.75 on BSE. The benchmark Sensex rose 1.58% to 22,628.84 points. RIL shares have gained 23.85% in a year, while the Sensex has risen 20.81%.

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