Reliance's June quarter results unlikely to excite

Despite higher gas output from the Krishna-Godavari D6 field on the eastern coast, Mukesh Ambani-promoted Reliance Industries Ltd (RIL) is expected to post an almost flat April-June quarter.

Analysts tracking the sector said refining margins—the realisation on turning every barrel of crude oil into fuel—is expected at between $7.75 and $8.5 per barrel for RIL, not much changed from the $7.5 (Rs 350) a barrel during the same period last year.

The company’s refining margins had dropped 24.2 per cent during the March quarter, at $7.5 per barrel from $9.9 (Rs 465) per barrel in the quarter ending March 31, 2009. “We expect RIL to report sequentially flat earnings for the first quarter, with little change in gross refining margins (GRMs) and gas production.

While regional benchmark GRMs have slipped from fourth quarter of 2010 levels, strength in diesel spreads and widening light-heavy differentials should hold GRMs at fourth quarter levels ($7.5 per barrel). Gas production from the KG-D6 field has remained largely unchanged at 60-62 million standard cubic meters per day, leading to flat E&P revenues,” JP Morgan said in its report.

Analysts said this was an interesting quarter for RIL. It announced forays into telecom and power sectors, capacity additions in petrochemicals and two acquisitions in US shale gas. In April, RIL said it’d invest $1.7 billion (Rs 8,000 crore) in a joint venture with US firm Atlas Energy Resources to develop a shale property to yield natural gas. In June, it bought a 45 per cent interest in the Eagle Ford shale acreage of Pioneer Natural Resources for $1.3 billion (Rs 6,000 crore).

RIL, with interests in petrochemicals, oil and gas exploration, textiles and retail, will continue to see a slow decline in margins. “The petrochemicals business has been under pressure and we estimate average margin at $500 per million tonnes, compared with the average margin of $640 per million tonnes in the previous quarter. The petrochemicals volume has been estimated at 100 per cent operating rate,” said JM Financial.

Motilals Oswal said it expected the polymer and fibre spreads (over naphtha) to decline as new capacities in West Asia and China get commissioned.

Reliance had cash and cash equivalent of Rs 21,874 crore in fixed deposits with banks and government securities and bonds till March. It had announced a series of projects in the last quarter, including telecommunication, petrochemicals and shale gas. Analysts said cash would not have been deployed yet for most of these.