Results preview: Retail hit to offset RIL's crude price gains, say analysts

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Analysts expect the improvement in energy margins on the back of a pickup in global demand to support the consolidated performance of Reliance Industries (RIL) in the first quarter (Q1) of financial year 2021-22 (FY22). However, the gains are also expected to be offset by the challenges in the retail and petrochemicals businesses, and a flattish show in telecom.


RIL’s board is scheduled to consider and approve the unaudited financial results for Q1 on Friday.


RIL’s core earnings and Ebitda (earnings before interest, taxes, depreciation, and amortisation) are expected to rise marginally by 2.5 per cent and 1.5 per cent quarter-on-quarter (QoQ), respectively, as energy margins impr­ove desp­ite decline in domestic demand across retail, petrochemical and telecom, said Mayank Maheshwari and Akash Mehta of Morgan Stanley in a note.


“The key to Ebitda growth will be the rise in oil-to-chemicals (O2C) Ebitda of approximately 17 per cent QoQ (4.6 per cent lower YoY) and ramp-up of gas production, both of which negate the approximately 20 per cent decline in retail and slight rise in telecom Ebitda (up 3 per cent QoQ),” the analysts said.


On a standalone basis, RIL’s Ebitda is estimated to rise 8 per cent sequentially driven by higher margins for downstream business and increase in contribution from the upstream segment, in Q1FY22.


Note by Kotak Institutional Equities (KIE) says it expects Jio’s Ebitda to remain steady QoQ as a rise in subscriber base to 431.2 million (5 million higher QoQ) will be offset by a moderation in average revenue per user (ARPU) to Rs 135 a month and decline in retail reflecting impact of lockdowns.


Motilal Oswal Securities (MOSL) estimates RIL’s consolidated Ebitda at Rs 22,800 crore (35 per cent higher YoY, and 2 per cent lower QoQ), primarily driven by growth in the O2C business (Rs 10,800 crore; 51 per cent higher YoY and 6 per cent higher QoQ). The retail business’ Ebitda is expected to see a dip due to the second wave of Covid-19 (Rs 1,700 crore; 92 per cent higher YoY and 43 per cent lower QoQ). “We expect RJio to post an Ebitda of Rs 8,300 crore (18 per cent higher YoY, flat QoQ),” it said. RIL’s refinery throughput is also expected to be lower QoQ due to an unplanned shutdown at its Jamnagar FCCU unit in June. However, “RIL is likely to benefit from increased difference between Arab light and heavy grades of crude oil spreading to $1.1 a barrel in the first quarter of FY22 (from $0.5 a barrel in March quarter),” MOSL said.


Meanwhile, the YoY performance would see a sharp surge due to the low base of last year.


Going ahead, Morgan Stanley analysts, say, “The key focus should be the recovery in energy earnings, ramp-up of gas production from KG fields, traction on JioMart, profitability on its platform apps, management commentary around traction on subscriber growth in July and details on new energy business plans and the O2C spinoff.”


In a report last week, Pinakin Parekh and Shreya Khandelwal of J P Morgan said they expect higher oil prices, refining margin recovery, and ramp-up of JioMart to support the RIL stock. Incrementally, larger telecom tariff hikes would be seen as a positive.


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