Retail, telecom likely to boost RIL Q3 numbers; petchem set to remain weak

Oil-to-telecom conglomerate Reliance Industries (RIL) is likely to see a flat quarter (Q3) in the October-December period.

The petrochemicals (petchem) unit’s performance may remain weak while retail and telecom segments are likely to gain further.

RIL will announce its results for the quarter ended December 2019 on Friday. In a Bloomberg poll, 10 analysts estimated revenue of Rs 1.45 trillion and net profit of Rs 11,435 crore for the third quarter on a consolidated basis.

For the quarter ended December 2018, the company reported a consolidated net profit of Rs 10,251 crore and consolidated revenue was at Rs 1.71 trillion.

“RIL’s profit is expected to be sequentially flat,” said Nitin Tiwari, vice-president at Antique Stock Broking. For the September 2019-ended quarter, RIL reported a net profit of Rs 11,262 crore. “The retail segment will show better numbers as it was a festive quarter. Telecom should benefit from increase in rates and levy of interconnect usage charges (IUC). Petchem could see a weak quarter while refining margins are expected to be sequentially flat to marginally lower,” said Tiwari.

In the refining business, RIL is expected to report gross refining margins (GRMs) in the range of $9.2 to $9.9 a barrel. “Benchmark refining margins have collapsed, given the sharply lower high sulphur fuel oil (HSFO) cracks.We forecast RIL’s reported GRM’s to be flattish, sequentially, at $9.4 per barrel and this would imply record premiums over the Singapore benchmark. But most of the premium would be because of fuel oil,” analysts at JP Morgan wrote in a note.

While RIL’s refining segment performance is expected to remain flattish, petchem performance is expected to take a further hit.

“Petchem cracks in the third quarter are expected to remain muted. The Naphtha cracker margins are down 18 per cent and PET integrated cracks are down by 24 per cent, sequentially. The demand for petchem is also likely to be tepid in Q3, which could further hurt profits.” said analysts with Bank of America Securities. The analysts expect RIL’s petchem earnings before interest and taxation (EBIT) to decline 16 per cent on a quarter-on-quarter basis.

Analysts with Morgan Stanley expect petchem’s earnings before interest, taxation, depreciation and amortisation (EBITDA) to fall 21 per cent on a year-on-year basis. 

“Most of RIL’s key product margins fell 17-38 per cent, sequentially, driven by inventory de-stocking and new capacity addition,” added the analysts.

As part of the RIL management’s takeaways on Friday, analysts will look for more clarity on the Jio-Mart initiative in its retail business. 

Analysts at CLSA expect RIL’s plans to convert subscribers into customers to materialise in the current year. 

“Along with ramp-up in the broadband space and launch of an offline-to-online retail extension called Jio Mart, this should start Reliance’s grand plan, which aims to convert Jio’s subscribers to customers and cross-sell retail and digital offerings,” said a CLSA note on RIL.

The Street will also watch out for a timeline on the proposed sale of partial stake in the oil to chemicals division to Saudi Aramco for $15 billion.