RIL's Q4 earnings growth likely to be near-flat

Exploration and production business continues to be a drag

Lower gas output from the Krishna-Godavari basin and steady gross refining margins might lead Reliance Industries (RIL) to post near-flat earnings growth for the fourth quarter of this financial year. RIL will report its fourth quarter earnings on Tuesday.

"Although benchmark gross refining margins went up significantly in the fourth quarter, we calculate RIL’s GRM at $9.8 a barrel, up only 20 cents quarter-on-quarter due to an adverse light-heavy differential," said Antique Stock Broking Ltd in a report. GRM is the difference between the crude oil price and total value of petroleum products produced by the refinery.

Last quarter, RIL had surprised the Street by posting better-than-expected earnings. During the quarter, better than expected GRMs and petrochemical margins helped RIL post a 24 per cent increase in net profit, at Rs 5,502 crore, its third straight quarterly profit increase. (A LUCRATIVE DISCOVERY?)

Analysts estimate RIL's fourth quarter profit after tax between Rs 5,540 and 5,550 crore, nearly unchanged. Also, with RIL shutting one of its crude distillation units for maintenance at its 580,000 barrels a day export-oriented refinery at Jamnagar for a few weeks, its crude throughput is down seven per cent quarter-on-quarter.

Petrochemical margins however, would show improvement. "We expect an 8.2 per cent quarter on quarter rise in petchem Ebitda (earnings before interest, tax, depreciation and amortisation), led by margin recovery in polymers and intermediates," said Niraj Mansingka and Kiran Tulasi of Edelweiss Securities.

With the exploration and production business continuing to be a drag, its KG-D6 gas production is estimated to be down 17.5 per cent. Domestic gas supply will be muted, as KG-D6 continues to decline till the start of its satellite fields.

However, "Any detail from RIL on its MJ-1 exploration well on the Dhirubhai-1 and 3 gas fields in the KG-D6 block, where it encountered natural gas while drilling, could add some colour to the results," said a Mumbai-based analyst.

Early this week, RIL encountered gas in the first exploration well that it spud in more than five years in the KG-D6 block.

RIL's scrip closed at Rs 771.15 today, down 1.3 per cent on the Bombay Stock Exchange.