The Street is expecting RIL to post lower profits in 2008-09, so the advance tax numbers are not really a surprise.
The advance tax of around Rs 440-460 crore, reportedly paid out by Reliance Industries (RIL), is lower by approximately 8-10 per cent than the amount paid out in the December 2007 quarter. That’s after adjusting for the tax paid last year on the Rs 560 crore profits earned from the sale of Reliance Petroleum (RPL) shares. The advance tax numbers are not really much of a surprise because RIL may well post lower profits this quarter compared with the Rs 3,882 crore reported in the December 2007 quarter. That’s why the stock bounced back after an initial fall to Rs 1,273 in Monday’s trading session.
In both June and September quarters, the company’s net profits increased y-o-y, though the numbers for the September quarter at Rs 4,120 crore were sequentially flat. However, the macroeconomic environment has weakened since then, prompting analysts to temper their earnings outlook. Kotak Securities, for instance, which, at the end of October, was expecting a net profit of Rs 15,000 crore for 2008-09, has now trimmed that estimate to Rs 12,700 crore, a downgrade of 15 per cent. RIL earned a profit of Rs 14,250 crore in 2007-08, indicating that the full-year profits this time could come off by about 11 per cent.
The Street is factoring in lower prices of crude oil and the global slowdown that is signalling weaker demand. Gross Refining Margins (GRMs) for RIL in 2008-09 are now being pencilled in at around $9.5 per barrel—the margin in the September quarter was $13.4 per barrel, while in the June quarter, it was $15.7 per barrel. For most of the last five years, RIL, thanks to the superior configuration of its refinery and the strong demand for transportation fuels, has enjoyed GRMs that were at a premium to the benchmark Singapore complex margin.
With the new refining capacity of 3 million barrels per day coming into the market in 2008-09, which is expected to cater to transportation fuels, this trend could reverse. The RIL stock has come off by close to 58 per cent from the peak of Rs 3,216, which it hit at the start of the year.
