Upside for RIL post completion of its $16 bn projects: Analysts

Most of the focus will be on telecom launch; strong petrochem, refining growth to boost performance

Reliance Industries Ltd (RIL) is likely to benefit from the completion of its $16-billion expansion projects and the roll-out of its telecom venture, say analysts.

“It is likely this year, most of the focus will be on the telecom launch. While telecom will likely be a key driver of the stock in 2015, we still believe petrochemical/refining growth will put an end to RIL’s underperformance,” Nomura said in a report, adding the company’s earnings should rise sharply as expansion projects are completed next year.

Weighed down by a steep decline in global crude oil prices, which hurt the profitability of its core refining business, RIL had, last week, reported a 4.5 per cent drop in consolidated net profit for the quarter ended December 2014. Net profit for the quarter was Rs 5,256 crore, compared with Rs 5,502 crore in the corresponding quarter of 2013, in line with market expectations. Standalone net profit stood at Rs 5,085 crore, down 7.72 per cent.

“This was a tough quarter. In the commodities business, this kind of volatility leads to a lot of challenges in terms of making sure margins aren’t pressured. We did proactive risk and inventory management. Volatility and nervousness in the market continues and we are cautiously optimistic,” said Alok Agarwal, RIL’s chief financial officer.

Macquarie said the company’s new downstream projects, for which $10 billion of the planned capital expenditure of $14 billion had already been spent, was key to RIL’s performance. “Led by these, we expect RIL’s profits to rise 60 per cent by FY18.”

Goldman Sachs said the company’s refining and petrochemical projects were set to be completed by the second half of 2015-16.

“We continue to see longer term upside through offshore gas (on implementation of a premium for deep-water fields), petrochemical expansion and completion of the gasification plant, which will enhance refining margins,” said Bernstein Research.

UBS said the company’s petrochemical, refining and domestic exploration and production businesses would improve through the next two years. “Given the gas price rise and the government’s focus on encouraging domestic production, problems with KG-D6 should be resolved soon and the gas production visibility should improve.”