RIL preview: Record Q4 results in the offing

Sharp improvement in refining margin by $2.7 per barrel to $10 per barrel is expected to be the prime driving force

Reliance Industries Ltd (RIL) is expected to post a record fourth quarter net profit as it benefits from refining margins, which will be partially offset by lower petrochemical margins. RIL will announce its January-March 2015 results on Friday.

A Bloomberg poll of 16 analysts forecast net profit at Rs 5,931.5 crore, against Rs 5,511 crore in the fourth quarter of the previous year, a growth of 7.6 per cent. Net sales are expected at Rs 64,455 crore. The analysts, however, factor in stand-alone figures whereas RIL, since the beginning of 2014-15, has been reporting consolidated numbers.

"Driven by an improvement in refining margins by $2.7 per barrel to $10 per barrel, the fourth-quarter standalone net profit is set to jump to a record high of Rs 5,920 crore. We expect the refining Ebit (earnings before interest and  tax) to rise over 50 per cent quarter-on-quarter, to Rs 4,860 crore," said Vikas Kumar Jain of CLSA.

Jain added this would be despite a seven per cent lower refining throughput (16.5 million tonnes) because of a planned refinery maintenance shutdown from mid-March.

Analysts expect the gross refining margin to be $9.5-10 per barrel against $7.3 in the previous quarter and $9.3 in the same quarter a year ago. The gross refining margin is earnings from turning every barrel of crude oil into fuel. Benchmark Singapore gross refining margins improved to $8.5 per barrel during the quarter and $5.7 per barrel for 2014-15.

The gross refining margin will also be helped by improved crack spreads in key products and an absence of significant inventory losses.

The price differences between refined products and crude oil, known as crack spreads, can roughly indicate how much profit a refinery can make from processing crude oil into petrol or diesel.

"Crack spreads were buoyed by a 30 per cent reduction in crude prices and planned/unplanned refinery outages," said Nitin Tiwari of Religare Institutional Research.

During the quarter, crude oil prices remained muted due to a glut. Brent crude oil averaged lower in the fourth quarter of this financial year at $54 per barrel. The basket of Indian crude oil averaged $52.9 per barrel.

In 2014, refining contributed 77.7 per cent to RIL’s revenue, while petrochemicals contributed 20.7 per cent and oil and gas 1.3 per cent. RIL’s petrochemicals segment is expected to report a flat Ebit at Rs 2,100 crore during the quarter, implying a margin of 11.5 per cent even as revenue declines on a correction in petrochemical prices.

Analysts have factored in lower gas production from RIL’s D6 block in the Krishna-Godavari basin at 11.5 million standard cubic metres (mscm) per day against 11.8 mscm per day in the third quarter of 2014-15. Consolidated profit will be muted as US shale profit will be affected by weaker gas and liquid prices.

The Reliance Industries scrip ended at Rs 923.7 on the BSE on Wednesday.