Reliance Industries’s Q2 result to get a boost from refining business

Reliance Industries Ltd (RIL) is likely to report an increase in profit for the three months to September, benefiting from higher refining margins that will offset weaker earnings from its petrochemicals business.

Stand-alone quarterly net profit is likely to increase to Rs8,687.5 crore on revenue of Rs66,088 crore, according to a Bloomberg poll of seven analysts.

In the year-earlier quarter, the company reported a stand-alone net profit of Rs7,704 crore on revenue of Rs 64,344 crore. RIL is expected to post a consolidated net profit of Rs8,263.3 crore, according to a Bloomberg poll of four analysts. Consolidated net sales would reach Rs85,785.3 crore, three analysts said. RIL will announce its fiscal second-quarter earnings on Friday.

“We expect RIL to deliver profit after tax of Rs8,620 crore, up 7% on quarter and 20% on year. This growth will be driven by refining, where we expect gross refining margin to increase from $10.1 per barrel to $12.5 per barrel,” Bank of America Merrill Lynch said in a report dated 9 October.

Analysts expect RIL’s gross refining margins (GRMs) to come in between $12.3 per barrel and $12.8 per barrel. GRM is the difference between the per-barrel price of crude and the value of finished products distilled from it.

“We forecast GRMs at $12.3 per barrel for second quarter on account of strength in diesel, gasoline and naphtha cracks. However, a shrinking light-heavy spread will also offset some of the refining strength,” Amit Shah of BNP Paribas wrote in a report dated 10 October.

Analysts expect RIL’s petrochemical segment to report a mixed performance. On the exploration and production front, RIL is again likely to report a loss.

The focus would be on the telecom segment where analysts expect RIL to disclose Jio’s ARPU (average revenue per user), paying subscriber base and operating expenses. This would be the first quarter in which RIL will report Jio’s financials.

“The focus will likely be on Reliance Jio’s numbers, which should give a sense of the future viability of this business and also of RIL’s treatment of non-operating expenses such as depreciation and interest expense,” added Shah of BNP Paribas.

“While actual numbers will be dependent on the exact date on start of expensing, portion of cost that continued to be capitalised, etc, the details of this will be keenly watched as investors expect a huge PBT (profit before tax) loss,” CLSA said in a report dated 10 October.