RIL's telecom, retail biz to shine in Q2; O2C muted, say analysts

Volatile energy markets, windfall taxes to contribute to O2C weakness; company to report results on Friday

The Mukesh-Ambani-led Reliance Industries (RIL) is likely to report a mixed set of numbers in the quarter ended September 30, 2022 (Q2), consensus estimates by Bloomberg show. The company will report its Q2 numbers on Friday. 

Earnings will be led by the telecom and retail businesses, while the oil-to-chemicals (O2C) division will be weak, led by volatile energy markets and windfall taxes levied during the quarter, analysts at brokerage Morgan Stanley said in a preview of the company's Q2 results on Thursday. 

RIL, for the uninitiated, derives nearly 60 per cent of its revenue from its O2C business, which includes refining, petrochemicals and fuel retail. The business contributes 50 per cent to earnings before interest tax depreciation and amortisation (Ebitda). Retail and telecom, on the other hand, account for 34 per cent of revenue and nearly 45 per cent of Ebitda.

RIL, according to Bloomberg consensus estimates, is likely to report double-digit growth (34.7 per cent) in revenue in Q2 versus a year ago to touch Rs 2.25 trillion. Net profit, however, may grow at around six per cent only in Q2 in comparison to last year to touch Rs 14,457 crore. Earnings before interest tax depreciation and amortisation (Ebitda) will likely remain flat versus the year-ago period at Rs 30,336 crore, Bloomberg consensus estimates show. The data has been compiled by BS Research Bureau.

Sequentially, the RIL numbers are likely to be even weaker, Bloomberg consensus estimates show. Revenue will likely grow at a sluggish pace of three per cent only versus the June quarter. Ebitda and net profit will likely decline by 24.6 per cent and 19.5 per cent each in comparison to the June quarter, Bloomberg data shows.

Morgan Stanley said RIL’s earnings may have fallen in Q2 as the O2C business was affected by refinery shutdowns, the windfall fuel export tax, and lower realisation from product cracks.

Singapore’s Gross Refining Margin (GRM), a key benchmark to gauge refining margins in Asia, fell 51 per cent sequentially to $9.1 per barrel in the September quarter because of a decline in fuel oil cracks.

Analysts expect no surprises in the earnings performance of Reliance Retail and Reliance Jio Infocomm in the September quarter. On a sequential basis, both verticals are expected to have performed well, driven by high customer acquisitions in telecom and strong footfalls in retail.

In terms of subscriber additions, Jio is set to lead, with brokerage Credit Suisse expecting the company to report net additions of 6 million for the quarter.

“We expect Jio to add the highest number of subscribers (9 million) for the second quarter in a row. Wireline subscriber addition momentum is likely to continue this quarter too, with addition of 0.8 million subscribers,” Emkay Global Financial Services said in its Q2 preview on Thursday.

IIFL Securities, on the other hand, sees the retail segment registering 36 per cent year-on-year growth in sales and a 7.5 per cent core margin in the September quarter.