RIL net to dip again in June quarter: Analysts

Refer to pressure on margins, problems at KG-D6, impact of global downturn

Weak refining margins and decline in gas output might lead to Reliance Industries posting a decline in net profit for the first quarter of this financial year, as compared to the corresponding previous quarter. This could be the third quarter in a row where the Mukesh Ambani-run company shows such a fall.

“We expect RIL’s first quarter net profit will be down 24 per cent year-on-year. There is a risk that net profit for 2012-13 may fall significantly, unless GRM (gross refining margins) and petrochemical margins recover from Q1 levels,” Bank of America Merill Lynch (BofAML) said in a report. GRM is the difference between the crude oil price and total value of petroleum products produced by the refinery.

BofAML said its concern was that the global economic downturn might hit RIL’s margins in these two aspects. “There are headwinds in refining and petrochemicals, which may hit RIL this financial year or even longer. Thus, RIL’s earnings outlook may deteriorate in FY13,” it said.

RIL’s half-yearly GRM for 2011-12 was below the Singapore GRM for the first time in its 12-year history. It was at a six-quarter low of $6.7 per barrel in the quarter and at a 19-month low of $5.5 per barrel in June.

Motilal Oswal, on the other hand, expects RIL to report a profit after tax of Rs 4,380 crore against Rs 5,660 crore in the corresponding previous quarter. “The subdued performance in the quarter is led by weak refining and petchem margin, and continuous decline in KG-D6 production, partially offset by higher other income,” it said.

Analysts said the global economic downturn meant weaker GRMs and petrochemical margins for India’s largest private company. Besides, falling output from the company’s gas producing asset, the Krishna-Godavari basin’s D6 block, has added to the company’s woes. Analysts said they expected KG-D6 volumes to average at 32 million standard cubic metres per day (mscmd) against 35.5 mscmd during the fourth quarter of 2011-12.

On a quarter-on-quarter basis, however, analysts expect RIL to post net profit either flat or only marginally up. BofAML expects RIL’s the first quarter net profit for this year to be Rs 4290 crore, up one per cent as compared to the fourth quarter of last year.

CLSA Asia-Pacific Markets expects RIL to post a flat net profit during the quarter. “Lower KG-D6 production, depressed GRMs and forex loss will be offset by higher refining volumes and marginal improvement in petchem, as RIL’s net profit remains flat at Rs 4,250 crore,” it said.

Nomura, on Thursday, upgraded RIL stock to ‘buy’ from ‘neutral’, saying the worst of exploration and production had already been factored in, but positive effects from a weak Indian currency was still not in the price. However, the Japanese brokerage marginally reduced its target price for RIL stock to Rs 860 from Rs 870 earlier.

According to Nomura, the ongoing share buyback will also limit any further downside in RIL’s stock price. The shares gained 1.7 per cent or Rs 12.40, to Rs 727.75 on the Bombay Stock Exchange on Thursday.