Retail, digital growth may drive Reliance Industries' Q2 earnings

Mukesh Ambani-led Reliance Industries is expected to post strong growth in consolidated net profit led by a robust rise in earnings before interest, tax, depreciation, and ammortisation (EBITDA) in the September quarter. The gains will be led by growth in retail, digital-telecom business, and steady petrochemicals margins, estimate analysts.
 
“We expect RIL’s consolidated EBITDA to increase 13.7 per cent quarter-on-quarter (QoQ) to Rs 26,600 crore and 40.2 per cent on year-on-year (YoY) basis,” said analysts at HDFC Securities in a report.
 
The oil-to-chemicals (O2C) business of India’s most valuable company is estimated to see its EBITDA per tonne of crude processed to increase 22 per cent sequentially, owing to improvement in gasoil cracks by 28 per cent YoY, said the report.
 
Higher oil prices should translate to a healthy increase in revenues in Q2 over the year-ago period as well as sequentially. Brent crude is currently hovering around $85 a barrel compared to $75 at the end of June quarter and about $40 at the end of Q1FY21. There could be some inventory gains too, leading to better margins in the O2C business.
 
“We expect RIL’s gross refining margin (GRM) to rise by $0.5 per barrel to $7.3 per barrel sequentially in Q2FY22 and refinery utilisation rates normalise up to 105 per cent. Refining margins, especially diesel, should rise further as global demand recovery and gas to oil switching for power generation/industrial fuels (due to higher gas prices) has led to diesel cracks rising above $10 per barrel, and reduction of diesel inventories has supported hig­her jet fuel cracks at $14 per barrel,” said a report by Morgan Stanley.
 
Some moderation in petchem deltas, however, are seen impacting O2C’s EBITDA on sequential basis, said analysts at Motilal Oswal Securities in their report.
 
The company’s retail business EBITDA is seen rising with fashion, jewellery and electronics sales recovering and margins inching towards pre-pandemic levels, said brokerages.
 

Easing of lockdown restrictions during the quarter will also support growth in the retail segment, leading to an increase in businesses’ EBITDA in the period under preview, said the JM Financial Institutional Securities report.  
“The estimated revenues for the retail business will rise 43 per cent sequentially in the period under preview, but would still be 4 per cent below the pre-second Covid wave run rate of Q4FY21,” said a Morgan Stanley report.
 
Brokerages remain divided on the average revenue per unit (ARPU) for the quarter in RIL’s telecom business.
 
At one end, YES Securities’ report stated that both company’s retail and refinery business would partially offset the plausible sequential decline in ARPU in the Jio Infocom business of the company.
 
On the other hand, Morgan Stanley said it expects telecom subscriber addition of 14 million during September quarter, in line with the previous quarter’s trend. This should be a key driver behind a 5 per cent sequential rise in telecom earnings, although the foreign brokerage estimates ARPUs to rise slightly by 1.5 per cent QoQ to Rs 140 per month. HDFC Securities, too, expects ARPU to rise a bit. “We have estimated 15 million user additions in Q2 and ARPU of Rs 141.6, up 2.3 per cent QoQ.”
 
Going ahead, the government’s telecom sector reforms should be supportive of ARPU increases, said brokerages.