Home / Companies / Company Results /  Second covid wave likely to keep RIL’s Q1 under pressure

Reliance Industries Ltd's first-quarter earnings could bear the impact of the second wave across its businesses, according to analysts, with core earnings and Ebitda expected to rise marginally on a quarterly basis.

According to a Bloomberg poll of 11 brokers, RIL is expected to post consolidated net sales of Rs1.47 trillion and according to 13 brokers, net profit of 13022.90 crore for the three months ended 30 June.

A year ago, consolidated net profit was at 13,248 crore and consolidated net sales were at 100,929 crore, respectively.

A Bloomberg poll of four brokers estimates its stand-alone net sales at 1.26 trillion and a poll of two brokers expects the stand-alone net profit to come in at 7660.50 crore.

"Overall, the second wave of covid-19 has impacted RIL’s businesses across the board. Higher exports in O2C, which are at lower margins versus domestic sales and sharply lower Retail," said JP Morgan in a report dated 13 July.

While earnings from its oil-to-chemicals (O2C) business is expected to be marginally up, quarter on quarter, earnings from exploration and production is also expected to be robust as its R-cluster and Satellite production continues to be on track, and production is estimated to reach 15 million metric standard cubic meters per day (mmscmd) during the quarter.

While Petrochemical margins globally continue to remain strong, analysts estimated RIL's exports during the quarter to have increased due to weaker domestic demand, resulting in pressure on overall price realizations.

Key chemical industry margins rose 3-29% quarter-on-quarter in the first quarter as a slowdown in new supply drove very tight markets in the early part of the quarter.

"RIL however might not be able to benefit from the chemicals upcycle ahead as domestic demand fell and we believe RIL would have raised its export sales which are lower margin. We expect RIL petchem margins to rise by 4% quarter-on-quarter versus industry margins up 15% on quarter to $290 a ton," said Morgan Stanley in a report dated 9 July.

On the retail front, analysts expect the second wave led lockdowns to have an impact on retail revenues – especially the apparel and electronic segments.

"We estimate the retail revenues to be up 10% year-on-year though down 26% quarter-on-quarter. With declining revenue, we also expect Ebitda margin to be down quarter on quarter to 7.5% leading to Ebitda down 28% quarter-on-quarter. We expect the bounce back from this business also sharp as lockdowns ease going into the second quarter," said BofA Global Research in a report dated 7 July.

Though Jio is expected to sustain its subscriber momentum going into the first quarter, estimating 15 million net adds despite lockdowns slowing industry net adds, a larger proportion of these subscriber additions are expected to be feature phone users and hence ARPU (average revenue per user) is estimated to be flattish.

"As a result, we model 3.5% quarter-on-quarter revenue growth at Jio. We expect network operating expenditure to rise in the first quarter due to seasonal spend leading to a flattish Ebitda margin of 47.8%," added BofA Global Research.

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