RIL's Q2 earnings: Focus to be on Reliance Jio numbers

Telecom venture performance will indicate how well the mega investment is paying off

Reliance Industries’ (RIL’s) financials for the quarter-ended September (Q2) to be announced on Friday are being looked at with great expectations. 

While the Street has high hopes from the core refining business, given the benchmark Singapore gross refining margins (GRMs) hitting a high recently, the numbers of telecom venture Jio would be closely monitored. 

The telecom business has been drawing the attention of investors, industry players and customers, and July-September will be the first quarter when RIL starts reporting Jio’s financial performance.

The refining and petrochemicals businesses contribute over 80 per cent to RIL’s revenue and profits. Hence, their performances will also have a strong bearing on investors’ sentiment.

After reporting multi-year high GRMs of $11.9 a barrel in the June quarter (Q1), RIL is expected to report a higher number in Q2, with Singapore GRMs hitting a 10-quarter high of $8.3 per barrel, up 29 per cent sequentially and 61 per cent year-on-year (y-o-y). Since RIL has a complex refinery that can process a cheaper variety of heavy crude oil, its GRMs tend to be at a premium to the benchmark. 

A surge in GRMs in Q2 has been led by the global demand growth exceeding capacity additions and also Cyclone Harvey, which disrupted the US supplies. The rise in crude prices should also lead to inventory gains and add to the GRMs. 

Analysts at CLSA expect RIL to post GRMs of $12.8 per barrel, while Motilal Oswal Securities pegs it at $12.6 a barrel, against $10.1 a barrel a year ago. 

Bank of America Merrill Lynch, however, expects adverse spreads to limit the company’s GRM expansions to $12.5 per barrel.

RIL is witnessing a regular rise in its petchem production as well as margins over the past few quarters.

According to analysts, the petchem segment is expected to do better in Q2, aided by strong volumes. Volumes pegged at 2.3 million tonnes for Q2 are seen rising 9.5 per cent y-o-y. The per-tonne profitability is seen rising to $370 (up six per cent sequentially and 17.7 per cent y-o-y), according to Motilal Oswal Securities’ estimates.

The improving GRMs and strong petchem performance should drive RIL’s standalone net profit to Rs 8,400 crore (up nine per cent y-o-y and two per cent sequentially), said CLSA, even as its analysts model forex (foreign exchange) loss of Rs 4,400 crore. 

Bank of America Merrill Lynch expects RIL to deliver net profit of Rs 8,620 crore.

Though analysts remain upbeat on the prospects of Jio and the success of Jio phones, the focus will likely be on its financial and operating numbers. The numbers should give a sense of the future viability of the business and also of the company’s treatment of non-operating expenses, such as depreciation and interest cost, said analysts at BNP Paribas. 

CLSA said the actual numbers would be dependent on the exact date of start of expensing and portion of cost continued to be capitalised. These details will be keenly watched, as investors expect a huge loss at the profit before tax level.