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MUMBAI, NEW DELHI : The performance of its energy business could be a key catalyst for Reliance Industries (RIL) in the December quarter with petrochemicals margins rising and refining recovering from its lows.

According to a Bloomberg survey of 10 brokerages, consolidated revenue is expected to fall to 1.21 trillion from 1.69 trillion in the year-ago period, while consolidated net profit, according to nine brokers, was expected to come in at 11,312 crore. RIL had posted a profit of 11,640 crore in the year earlier.

“For the third quarter, we expect RIL to report a 14% quarter-on-quarter (q-o-q) rise in Ebitda and a 16% q-o-q recovery in earnings, two-thirds of which is expected to be driven by a recovery in petrochemicals Ebitda, which we estimate will rise 26% q-o-q (4% year-on-year)," said Morgan Stanley in a note on 8 January.

Ebitda (earnings before interest, taxes, depreciation, and amortization) is a measure of a company’s operating performance.

Petchem margins rose 30-107% in December from a year earlier because of strong demand for polyvinyl chloride (PVC) and polyethylene. While PVC margin is at a record high, led by robust demand from the infrastructure and non-woven segments, polyester margin is hampered by huge capacity additions in China. A significant slowdown in global capacity additions may also aid RIL’s chemicals margin as its biggest strength is its ability to take advantage of feedstock flexibility, which will lead to better margins over the next couple of quarters.

In the three months to December, Dubai and Brent crude fell 29% from a year earlier, but rose 3-5% q-o-q at $43.9-44.6 per barrel. Reuters’ Singapore gross refining margin (GRM) recovered to $1.2 per barrel from $0.05 per barrel bbl in the fiscal second quarter.

Analysts expect RIL’s GRM to be at $5.7-5.9 per barrel in Q3 FY21 against $9.2 per barrel in Q3 of the last fiscal. According to CLSA, a gain of $0.2 per barrel in GRM and higher throughput should lead to a 22% rise in refining Ebit.

On Wednesday, RIL’s stock rose 1.91% to 2,054.85 on BSE. The stock has underperformed the Nifty by 35% over the past three months.

On the retail front, Ebitda is expected to recover to nearly 96% of pre-covid levels with a demand revival in electronics and fashion lifestyle categories, besides improved fuel retail volumes.

“Amid the ongoing recovery, RIL Retail has significantly outperformed peers, with revenue continuing to grow despite lower footfall y-o-y. We expect a strong inflection in retail revenues and forecast an overall core retail revenue CAGR (compound annual growth rate) of 40% over the next three years," said Goldman Sachs in a report dated 17 January.

Telecom subsidiary Reliance Jio Infocomm Ltd’s revenue is expected to grow 3-4% driven by improvement in key metrics such as average revenue per user (Arpu). Analysts expect Arpu in the third quarter to rise on the back of annual recharges by residual subscribers at higher tariffs for the first time since the hike in December 2019.

Brokerage firm Axis Capital said Jio’s revenue likely grew in October-December as India’s largest telecom operator by market share is expected to have added 6 million subscribers and its Arpu should improve by 2% to Rs148 from Rs145 a quarter ago. Addition of higher-paying customers to JioFibre, the telco’s fixed-line broadband service, may also support Arpu growth.

However, it said, “net subscriber addition will be muted, based on the October 2020 data released by Trai (Telecom Regulatory Authority of India)". Churn rate, which heightened because of restrictions put in place in March to check the spread of covid-19, is expected to have remained high.

Analysts said the ongoing farmers’ protests in the national capital region will have an impact on Jio’s subscriber addition in Q3. “We expect net additions for Jio to remain relatively modest at 7 million (versus 7.3 million in Q2). Farmers’ protests in states like Punjab/Haryana had an impact, in our view," BofA Securities said in a report.

Jio has alleged that rivals Bharti Airtel Ltd and Vodafone Idea Ltd (Vi) are carrying out unethical and anti-competitive mobile number porting to capitalize on the ongoing protest.

Earlier this month, Jio said more than 1,500 of its nearly 9,000 telecom towers were damaged, causing disruptions to its mobile network and affecting services, which led to inconvenience to many among its 14 million subscribers in Punjab.

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