Q2 result preview: Petchem likely to boost Mukesh Ambani's RIL profit

Buoyed by its petrochemicals business, Mukesh Ambani-led Reliance Industries (RIL) is expected to report a steady performance for the September quarter. The oil-to-telecom major, however, could see its refining margins come under pressure.

RIL will announce financial results for the September quarter on Wednesday. In addition to how the company performs in its various business segments, the Street will watch out for more clarity on the capital expenditure plans.

In a Bloomberg poll, seven analysts expect RIL to report consolidated revenue of Rs 1.40 trillion and 10 analysts expect RIL’s net income to be Rs 96.29 billion. In the corresponding quarter last year, RIL reported a net profit of Rs 81.09 billion. Analysts expect the petrochemicals business to drive most of this profitability.

“We expect RIL to continue its steady performance, supported by petchem,” analysts with Emkay Research noted in a report on the company. Others like Nomura expect petrochemicals to report yet another record earnings before interest and taxation (Ebit) quarter, with an increase of 70 per cent on a year-on-year basis, while refining Ebit is expected to moderate.

Gross refining margins (GRM)s of the company are expected to be under pressure, with analysts estimating the same to be in the range of $9.6-$10.5 per barrel against $12 per barrel reported in the same quarter a year ago. “Reliance’s GRM may decline to $9.8/bbl as lower light-heavy crude differentials could hurt even as refining throughput is likely to rise 6 per cent quarter-on-quarter (QoQ),” according to a CLSA note on the company. 

If the company reports a GRM on the lower side of the estimated range, it would be the first time RIL would report a single digit GRM since its December 2014 ended quarter. GRM is an indicator of what the company earns out of converting one barrel of crude to finished products.

(Figures in $ per barrel)

The last few quarters saw RIL make significant announcements in terms of its home-to-fibre business and the launch of mobile handsets. 

The Street will watch out for both capital expenditure plans and clarity on the conglomerate’s retail and telecom business financials. Cross selling between Reliance Retail and Jio's customers is expected to be the larger plan for the conglomerate. 

Clarity is also awaited on the exact flow of revenues between the retail and telecom arms.

Analysts estimate Jio to report revenue growth of 10-13 per cent on a sequential basis coupled with a nominal fall in average revenue per user (ARPU) by 2-3 per cent. A Morgan Stanley report noted that since Jio has been improving its monthly net (subscriber) additions run rate from its average of 9-10 million since January 2018, it is expected to add about 35 million subscribers in the September quarter. 

“ARPU could decline by 2 per cent sequentially, leading to 13 per cent QoQ revenue growth. Some increase in operating expenditure could compress the earnings before interest, taxation, depreciation and ammortisation (Ebitda) margin, but we expect 10 per cent QoQ Ebitda growth,” wrote Mayank Maheshwari, Equity analyst, Morgan Stanley.

Goldman Sachs estimates September quarter revenues of Jio to be Rs 90 billion (up 11 per cent QoQ) with 245 million subscribers (up 14 per cent, sequentially) and ARPU of Rs 130 (down 3 per cent QoQ). 

“While Jiophone traction has been good, driving subscriber estimates, yet smartphone ARPU recovery has been delayed by six months to early next year,” the report added.