“On a standalone basis, the first quarter was largely a subdued one driven by weak margin trends in both the refining and chemical businesses. On a consolidated basis, part of the weakness should have been offset by the increasing earnings contribution from consumer businesses," said HSBC in a research report dated 8 July.
RIL is expected to report its eighth consecutive quarterly decline in gross refining margin (GRMs), which is what a refiner makes from turning every barrel of crude to fuel. Analysts expect RIL’s GRM to be at $8-$8.5 per barrel this time.
“We expect RIL’s GRMs to be down 2% quarter-on-quarter at $8 per barrel due to unfavourable Brent-Dubai and refinery shutdown," said Emkay Research in a report dated 8 July.
Brent crude oil prices fell 8.2% year-on-year to average $68.5 per barrel in the June quarter. Singapore GRM declined 43% year-on-year to $3.5 per barrel. Though GRM has recovered of late, the gasoline crack spread remains at lower levels. RIL’s performance in petrochemicals may not impress either as chemical margins have been on a downtrend, especially in June, due to a possible slowdown in demand. Chemical margins have weakened despite the increase in Chinese imports.
“In addition, increasing capacity as seen for monoethylene glycol (MEG) and paraxylene (PX) and a decline in demand as seen for butadiene (BD) further point toward a sustained slowdown in the sector. We lower our margin assumptions for PX, MEG, BD, and ethylene," said BNP Paribas in a report dated 17 July.
According to Goldman Sachs, RIL’s petchem earnings before interest, tax, depreciation, and amortization (Ebitda) will be 9% lower from the previous quarter. On Thursday, RIL’s shares ended at ₹1,262.80 on BSE, down 1.54%, while the benchmark Sensex fell 0.81%.
RIL’s telecom and retail businesses remain the bright spots in its portfolio.
Jio is expected to report increased profitability quarter-on-quarter (q-o-q), riding on JioPhone sales and subscriber additions. It is expected to report around 7% quarter-on-quarter revenue growth with a marginal dip in average revenue per user (ARPU) by 1-2% to ₹125.
“ In 1Q, Ebitda is likely to see a q-o-q decline due to the transfer of Jio’s tower and fibre assets to a separate SPV (towards the end of 4Q19), on which Jio will start recognizing rent in the income statement. We note that it is difficult to estimate the exact Ebitda impact in 1Q due to limited details around the rental structure of these assets, but forecast a 370bps q-o-q Ebitda margin compression to 35.3%," the Goldman Sachs report said.
On the retail front, RIL is expected to benefit from strong store additions. Also, end of season sales, which commenced a week earlier than the base quarter, is expected to help. “However, the overall slowdown in the economy coupled with the Indian Premier League and Cricket World Cup, which were expected to impact sales as most matches were scheduled on Sundays, led to lower footfalls," said Edelweiss Securities Ltd in a note dated 5 July.
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