Analysts see lower margins & profit for Reliance Industries in Dec qtr

Ahead of its results, RIL's scrip was down 0.25 per cent at Rs 885.15 on the BSE on Thursday

Lower refining and petrochemical margins and no increase in gas flow from its D6 field in the Krishna-Godavari basin (KG-D6) will see Reliance Industries posting a decline in profit for the financial year’s third quarter, October-December, say analysts.

They expect the quarter to be sequentially weak for the Indian oil and gas sector.

“The quarter was characterised by marginally lower oil prices and weaker gross refining margins (GRMs), on a quarter on quarter basis. For RIL, we expect profit after tax to decline three per cent, quarter on quarter, on weak polyester margins and marginally lower GRMs,” said Morgan Stanley’s report, adding: “However, its premium over Singapore complex GRMs should expand and this would be a key positive." GRMs are earnings from processing a barrel of crude oil. Last quarter, the company reported a 19 per cent drop in GRMs.

Motilal Oswal said an increase in Arab light heavy differential would improve RIL’s premium over the benchmark Singapore GRM. The latter saw a quarter-on-quarter decline of around 20 per cent, averaging $4.3 a barrel. Crude oil prices were flat, with the Brent average at $109 a barrel, led by easing of geo-political concerns in Iran.  While year-on-year revenue for RIL is expected to remain flat, net profit is expected to fall around 3.3 per cent to Rs 5,300 crore.  Ahead of its results, RIL’s scrip was down 0.25 per cent at Rs 885.15 on Thursday on the BSE.

Its  exploration and production (E&P) business, however, would grow, on a much smaller base, said analysts. They said they expected gas output from KG-D6 to average 12 million standard cubic metres a day (mscmd), down from 14 mscmd in the previous quarter.  “KG-D6 gas production further declined but has likely bottomed," said Nomura in its report. Morgan Stanley said it estimated RIL’s E&P division to report an earnings before interest and tax (Ebit) of Rs 400 crore.

The petrochemical business, which saw a margin of a little over 10 per cent last quarter, might not impress. “During the quarter, although weighted average olefins were up eight per cent quarter-on-quarter, polyester margins were down nine per cent, dragging overall performance down. Overall, we expect the petchem Ebit to decline 10 per cent quarter on quarter to Rs 22.3 billion," said the Morgan Stanley report.

Nomura said the petchem Ebit would moderate after a strong July-September quarter.