Analysts with Bank of Baroda (BOB) in a note on RIL said, “Petrochemicals’ earnings before interest and taxation (EBIT) is expected to surge to Rs 66 billion, (92 per cent higher on a year-on-year basis) on commissioning of ROGC (refinery off-gas cracker) and petroleum coke gasification units.”
For its refining business, analysts expect the gross refining margins (GRMs) to remain in double digit, but may a tad lower than RIL’s recent performance. Jefferies, in its note, added that it expects RIL’s GRMs to be at $11.3 per barrel, while analysts with BOB pegged it at $11.8 per barrel. For the March 2017 quarter, RIL reported a GRM of $11.5 per barrel and for the December 2017 ended quarter the figure was at $11.6 per barrel.
“It will be a stable quarter, with not many surprises on either side,” said an analyst with a domestic brokerage firm who did not wish to be identified.
But, with rising crude oil prices and a weaker rupee, and an expanding telecom business, the jury is out.
The performance of its telecom business (Jio) will be a key focus area of analysts as well as investors.
Even though average revenue per unit (ARPU) for the telecom business is likely to be lower, Jio is expected to post a higher EBIT on the back of a larger subscriber base.
“Retail should continue to do well, as could telecom presuming no drastic changes to operating expenditure and capital charges. ARPU may fall on the January tariff, but higher subscribers may drive EBITDA seven per cent and net profit 22 per cent higher quarter-on-quarter to Rs 6.2 billion,” analysts with Jefferies said in a note. RIL’s consolidated net profit may also rise four per cent year-on-year to Rs 97.65 billion, short of the Rs 100 billion mark, the foreign brokerage adds.
There is a word of caution though on Jio’s medium term performance. Analysts expect the rate of market share growth to gradually decline for RIL’s telecom division starting FY20. “The bulk of Jio's market share gain has come at cost of smaller operators, while incumbents, particularly Bharti, have managed to hold on to their share. Hence, we expect Jio's market share growth to slow from FY20, given all the major operators are now offering unlimited voice and practically unlimited data,” analysts with UBS Securities noted in a note on the telecom sector.
A Deutsche Market Research note lists the deal with Reliance Communications (Rcom) as another challenge for Jio in the medium turn. “Jio’s mid-term challenges include maintaining access to Rcom’s assets (tower, fibre, and spectrum) and mitigating the risks related to expiry of Rcom spectrum in 2021. Its ongoing deal for Rcom assets will further increase its capital employed, which is 40-50 per cent more than its peers though it includes fixed broadband investment. Thus, Jio would need a larger revenue base or a significantly higher margin to make comparable returns,” the report said.
Recent reports, however, suggest that Jio is planning to roll-out its broadband services by end of 2018, which analysts believe could add about Rs 30-40 billion to operating profit in the next 2-3 years.
For now, with oil prices higher, the US shale business should also see some improvement. The company’s commentary on petrochemicals, refining (especially ramping up of expansion projects) and telecom business will be keenly watched.
All these suggests that the Rs 100 billion mark in quarterly net profit may not be too far.