Q3 results preview: RIL net seen rising a tad on higher petchem earnings

Mukesh Ambani-led Reliance Industries (RIL) is expected to take a further hit on its gross refining margins (GRM), which have touched a multi-year low for the quarter ended December 2018. 

Overall profit of the company is expected to see a marginal year-on-year (Y-o-Y) growth with higher petrochemicals earnings. RIL will announce its results for the December 2018 ended quarter on Thursday. With most digital business announcements now officially made, analysts add there may not be much to look for in the management guidance by RIL.
 

In a Bloomberg poll, eight analysts estimated a consolidated revenue of Rs 1.4 trillion for the quarter under review and a net profit of Rs 9,609 crore. In the same quarter a year back, RIL reported a net profit of Rs 9,423 crore and revenue of Rs 1.09 trillion. “We expect weakness in refining margins to continue, leading to a sequentially flat profit for the company. On a YoY basis, we expected marginal profit growth, largely helped by petrochemicals and other businesses like telecom and retail,” said an analyst with a domestic brokerage firm, on condition of anonymity.

Analysts with Morgan Stanley, in a report on RIL, noted they expect higher other income and telecom subscriber growth to help earnings. “RIL’s consolidated earnings for the December quarter will remain flat on a sequential basis and decline in refining margins should be negated by higher other income and telecom subscriber growth,” analysts with the brokerage wrote in a January 7 report on RIL. They estimated a gross refining margin (GRM) of $8.5 per barrel for the December quarter owing to weaker gasoline margins, though partially negated by rising crude discounts. 

GRM is what a refiner makes for converting one barrel of crude oil into fuel. The analyst quoted earlier expects RIL to report a GRM of $7.5 per barrel. For the quarter ended September 2018, RIL reported a GRM at $9.5 per barrel, its lowest since the December 2014 ended quarter. Analysts expect the weakness in refining margins to continue for another two to three quarters. They expect a meaningful recovery in the second half of 2019.

RIL’s telecom business is expected to witness a revenue upswing following a huge subscriber addition during the quarter, both because of the feature phone offer as well as exodus of subscribers from rivals. 

The movement of around 30 million subscribers to Jio should mean a revenue growth of almost 12 per cent to Rs 10,300 crore, say analysts. This user addition will negatively weigh on Jio’s average revenue per user or ARPU by 2-3 per cent at least bringing it down to around Rs 129. ICICI Securities has factored in 11.8 per cent quarter-on-quarter (QoQ) revenue growth for Jio and 10.3 per cent QoQ growth in profit after tax to Rs 750 crore while earnings before interest, depreciation and ammortisation or (Ebitda) is likely to grow 9.3 per cent QoQ to Rs 3,900 crore. Rising network roll out costs are likely to weigh on Ebitda margins by 90 basis points.