Reliance Industries Ltd (RIL) reports its December quarter (Q3) results on Thursday. Here’s a look at its mainstay businesses and how the company is expected to fare.
Refining: Benchmark Singapore gross refining margin (GRM), a key measure of profitability for refining firms, averaged $4.3 a barrel in Q3, a multi-quarter low. Accordingly, ICICI Securities Ltd estimates the company’s GRM for the December quarter to be at a 16-quarter low of $8.7 a barrel, and down from $9.5 a barrel in the September quarter.
Petchem: In the first two quarters of the year, Reliance’s petrochemicals business did the heavy lifting, as far as driving profit growth went. Q3 may be different, because although the polyesters business fared stronger, the chemicals business was soft. “The petchem business will be flattish to better in Q3," says an analyst.
Telecom: Analysts expect Reliance Jio Infocomm Ltd’s revenue and profits to increase sharply sequentially, supported by a robust increase in its subscriber base and steady tariffs. Analysts at Kotak Institutional Equities estimate revenues and operating profit to increase 14% and 20%, respectively, on a sequential basis.
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Retail: Reliance Retail Ltd has recently become meaningful in size, accounting for 7.1% of overall operating profit in the first two quarters, up from 2.8% in the year-ago period. The retail business is expected to have gained in scale in Q3. According to Jefferies India Pvt. Ltd, the retail business should see strong revenue growth as well as higher margins, thanks to the festival season.
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The nub: While the share of consumer businesses has risen sharply already this year, the trend is likely to not only continue, but also accelerate in Q3. Apart from the weakness in the refining business, incremental growth in the petchem business is also likely to be muted. The telecom and retail businesses, on the other hand, are expected to fire away.
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All said, given that the mainstay energy businesses are expected to be a drag, consolidated profit is estimated to be flat on a quarter-on-quarter basis. Analysts at Jefferies and Kotak both expect Ebitda (earnings before interest, tax, depreciation and amortization) in RIL Q3 results to remain flat at around Q2 levels.
However, analysts at Jefferies add, “Rising debt at telecom & retail is likely to leave consolidated net liabilities about $2.5bn higher sequentially to ₹ 3.2 trillion." Flat profits and rising debt is something that should worry investors.