RIL results preview: GRM to decline, petchem biz to drive profitability

Oil-to-telecom conglomerate Reliance Industries (RIL) is expected to report a sequential decline in gross refining margins (GRM), while still maintaining it in double digit. The market is watching out for the telecom division’s performance which surprised the street with an operating profit in the previous quarter.

In a Bloomberg poll, nine analysts estimated the company’s consolidated profit at Rs 84.96  billion against Rs 81.09 billion and seven analysts estimated revenue of Rs1.02 trillion against revenue of Rs 914.81 billion reported in the same quarter a year back. At a standalone level, nine analysts expect revenue at Rs 851.11 billion and 10 analysts expects net income at Rs 85.46 billion.

“We expect 12 per cent year-on-year earnings growth in the third quarter, driven by robust refining and chemical margins. Higher polyester margins and volume growth to negate the impact of marginally lower product cracks,” analysts with Morgan Stanley wrote in a January 15 report.

The company’s telecom venture reported its financial performance for the first time in the September quarter. For that quarter, RIL said EBITDA for its digital services segment was at Rs 14.43 billion and net loss of Rs 2.71 billion. Analysts will watch out for more details on the performance of this segment. “We expect FY18 Jio revenues of Rs 158 billion implying the second half of FY18 revenues of Rs 96 billion. We note pricing competition continues with the latest round of price cuts from Jio,” analysts with Goldman Sachs wrote in a January 15 note.

The Goldman Sachs analysts also noted Jio’s revenue market share, future capital expenditure program in light of the recent acquisition announcement of Reliance Communications’ assets would be the key points to look for in the management discussion post results announcement.

The company is expected to continue with its double-digit trend for its gross refining margins (GRMs). Analysts expect GRM for the company to be in the range of $11.1 to $11.8 a barrel, lower from $12 per barrel reported in the September quarter. “The decline in GRM would get offset by strong performance of the petrochemicals segment, which we expect to benefit from higher volumes (on account of ramp up of the recently commissioned petchem expansion projects) and feedstock benefit from US ethane imports,” analysts said in Sharekhan report dated January 8.  

 Few others like Goldman Sachs expect GRMs to remain flat.  “We expect RIL GRM to remain flat versus last quarter at US$12.1/bbl implying a premium of US$2.4/bbl versus Singapore Complex GRMs,” the analysts with Goldman Sachs noted.

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