Shares of Reliance Industries Ltd (RIL) have increased as much as 18% since its annual general meeting on 12 August where chairman and managing director, Mukesh Ambani, said the company will be a zero net debt one within the next 18 months by 31 March 2021. In that backdrop, when RIL announces its September quarter results on Friday, “any signs of decline in capex intensity should increase confidence in our view," said analysts from HSBC Securities and Capital Markets (India) Pvt. Ltd.

That apart, the sequential recovery in refining margin, should help RIL’s refining business earnings. For perspective, benchmark Singapore GRMs have averaged to $6.5 a barrel for the September quarter from $3.5 a barrel during the June quarter. “A sharp recovery in refining margins coupled with lower ethane and LNG prices, and higher petchem volumes should partly offset weakness in benchmark chemical margins and deliver a 7% qoq growth in standalone earnings," said HSBC analysts in a report on 8 October.

Separately, state-run oil marketing companies (OMCs) are expected to cough up a good set of numbers for the September quarter. OMCs include Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd (IOC). Performance of these companies will get a boost from the rebound in refining margin. Further, auto fuel marketing margins have remained resilient. These two factors are likely to set off inventory and forex losses to some extent.

Analysts from Kotak Institutional Equities expect BPCL and HPCL to report 20-23% qoq increase in Ebitda, despite accounting for 1000-1100 crore of inventory and forex losses. The broker expects IOC to report 20% qoq decline in Ebitda, impacted by 3300 crore of inventory and forex losses. Ebitda, a key measure of profitability, is earnings before interest, tax, depreciation and amortization. IOC’s profitability is expected to be relatively weaker than its peers, HPCL and BPCL, mainly owing to higher inventory losses.


Meanwhile, crude oil prices have declined by about 18% on a year-on-year basis. This is expected to drag down profits of oil producers such as Oil and Natural Gas Corp. Ltd and Oil India Ltd as price realisation gets adversely affected.

In keeping with the optimism in broader markets, shares of all these companies have run up after the corporate tax rate cuts. As such, September quarter results are not expected to fuel big jumps in share prices. “The stock prices, in our view, are unlikely to move on earnings but would be news flow dependent," wrote analysts from J.P. Morgan India in a report on 7 October. “For the broader state owned enterprises space, how the government moves on the potential BPCL privatization would be an important driver for stocks. For Reliance, the key events that investors are focused on are the completion of various deleveraging deals," add J.P. Morgan analysts.

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