Q1 results preview: Jio to steady RIL ship amid slowdown in retail, energy

Telecom could be the lone bright spot in Q1, with retail earnings falling prey to the Covid impact
Reliance Industries’ (RIL’s) retail and energy verticals expect a dent in earnings in the June quarter (Q1), because of the pandemic.

However, higher earnings in the telecom business may partly cushion the hit. On Thursday, RIL will report its results for Q1 — the first quarter to fully reflect the lockdown impact. In a Bloomberg poll, 10 analysts estimate net profit to come in at Rs 7,119 crore. The figure stood at Rs 10,104 crore in the same quarter last year. In the poll, 11 analysts estimated revenue to come in at Rs 1 trillion.

RIL’s consumer businesses — retail and telecom — were the cash cows since the past many quarters. However, telecom could be the lone bright spot in Q1, with retail earnings falling prey to the Covid impact.

Analysts at Axis Capital expect earnings before interest, taxes, depreciation, and amortisation (Ebitda) to decline 13 per cent year-on-year to Rs 18,500 crore.  “Strong performance by Jio gets offset by further deterioration in the energy and retail businesses,” the analysts wrote in their note.

Oil prices touched new lows during the first half of Q1, as global industrial activity and demand for petroleum products slowed down. In India, demand for petroleum products fell to one-third of the usual level, in April. The same is likely to reflect in RIL’s energy earnings. The firm also implemented pay cuts for employees in the hydrocarbon business, given the adverse impact of the pandemic on fuel demand. Earnings in the organised retail business is also expected to fall, with Covid likely to hit the fashion and electronics segments.

Analysts at Centrum predict RIL’s worst quarter in the last three years. They said: “The June quarter looks worse,” expecting a 49 per cent YoY dip in petchem Ebit, 30 per cent YoY dip in retail Ebitda, and $2.9/ barrel sequential dip in gross refining margins (GRM).  

GRM for the June quarter, according to analysts, may come in at $6.5-9.0 a barrel. “RIL is expected to report GRM of $9 per barrel, helped by inventory gain and discounts offered to Indian refiners at the beginning of the quarter,” said analysts with Motilal Oswal.

 At the annual general meeting this month, RIL Chairman and Managing Director Mukesh Ambani told shareholders that over the last few months, “Jio has become the digital lifeline for Indians. Despite the surge in data traffic, Jio’s network had held firm.” 
Centrum analysts expect the telecom business to report steady earnings, with 38 per cent YoY revenue growth and 45 per cent YoY rise in Ebitda.

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