RIL's December quarter performance likely to remain flat

Its better performance in the refining segment is expected to offset lower petrochem earnings

Mukesh Ambani-led Reliance Industries Ltd (RIL) is expected to report a sequentially flat performance for the October-December 2016 period due to weaker profitability in the company's petrochemical business, according to analysts. RIL will announce its financial results for the December quarter on Monday. 

In addition, to its financial performance, the Street will also look forward to the company guidance on its telecom business and the commissioning schedule for the current calendar year. 

In a Bloomberg poll, 11 analysts estimated a standalone net profit of Rs 7,842 crore and standalone revenue for the company at Rs 65,753.6 crore. Most analysts expect RIL's gross refining margins or GRMs to be in the range of $10.7-$10.9 per barrel in the December quarter — sequentially higher from $10.1 per barrel reported for the September-ended quarter. 

Certain others like Satish Mishra and Deepak Kolhe, analysts with HDFC Securities expects higher GRMs at $ 11.5 per barrel. "Refining earnings before interest and tax (EBIT) is expected to be up 10 per cent quarter-on-quarter and 2 per cent year-on-year (YoY). GRM can rise from $10.1/bbl in the September quarter to around $10.9/bbl, on stronger product cracks and modest inventory gain," analysts Sanjay Mookim and Anand Kumar from DSP Merrill Lynch wrote in a report. 

The company's better performance in the refining segment is expected to offset the lower profitability expected for its petrochemicals business. "Maintenance shutdown, lower petchem earnings to offset the strong refining quarter. Despite a sharp improvement in Singapore complex GRM in the quarter to $6.7/bbl from $5.1/bbl in the September quarter, we expect Reliance's earnings to be largely flattish versus the September quarter," said AryaSen and Ranjeet Jaiswal, analysts with Jefferies. 

There could be a likely impact of the demonetisation drive in the country. "We expect petchem earnings to be muted led by lower spreads in both polymer and polyester chains and lower sales offtake due to demonetisation, impacting the offtake by customers," Amit Rustagi and Probal Sen wrote in an IDFC Securities report. Rustagi and Sen expect GRMs for the company to touch $11.1/barrel for the December-ended quarter.

The company's exploration segment is likely to remain a drag. "RIL is likely to report small losses on domestic exploration and production business. US shale will also continue to remain loss-making. Crude oil prices are higher YoY but domestic gas prices are lower. KG-D6 production is expected to be down 24 per cent YoY," the DSP Merrill Lynch analysts noted in their report.

Last month, RIL's telecom venture Jio extended free services up to March 2017. Management guidance on plans for Jio services beyond March will be one of the key announcements to look for on Monday.