RIL likely to report slowest profit growth in 15 quarters, say analysts

The operating profit of Mukesh Ambani promoted Reliance Industries' (RIL) is expected to take a hit in the June quarter. Analysts estimate a decline in earnings before interest, taxation, depreciation and amortization (EBITDA). The company is also expected to see its slowest profit growth in the last 15 quarters. RIL will report its June 2019 ended quarter results on Friday.

In a Bloomberg poll, 10 analysts estimated consolidated net profit at Rs 9,697 crore and a revenue of Rs 1.46 trillion. Consolidated profit for RIL in the April-June 2018 quarter stood at Rs 9,459 crore. “We forecast consolidated EBITDA of Rs 20,200 crore in the June quarter, down 3 per cent quarter-on-quarter and profit after tax at Rs 9,500 crore down 9 per cent sequentially,” said analysts at JP Morgan in a report on the company. The analysts added the company is expected to see its slowest profit growth in 15 quarters, as weakness in petrochemical takes a toll and unlikely to recover in the near term. Analysts with Goldman Sachs expect consolidated Ebitda for the company to be lower by 3 per cent on a year-on-year basis.

In the post management commentary, the street will look for updates on the fibre to home business, and any increase in network and operating expenses post the de-merger of fibre and tower assets into an InvIT structure. In addition, investors will also look out for guidance on monetization of telecom assets, launch of e-commerce platform and further capital expenditure plans.

Segment-wise RIL is expected to report weak margins for its core business-petchem and refining, while its consumer segment is expected to partially offset the hit. For the refining business, analysts estimate gross refining margins (GRM) in the range of $8 per barrel to $ 8.4 per barrel. In the March 2019 quarter, RIL’s GRM stood at $8.2 per barrel, which was the lowest since October –December 2014 quarter where it was $7.3 per barrel.

RIL’s petchem earnings are expected to take a further hit in the June quarter, after a flat performance in the March quarter. “We expect petchem EBITDA to be down 9 per cent (QOQ) this quarter as sequential core margins have been down for most chemical products due to trade war related concerns,” said analysts with Goldman Sachs in a July 15 report.

Earnings from RIL’s consumer business-telecom and retail could help its consolidated performance. “On a consolidated basis, part of the weakness should have been offset by the increasing earnings contribution from consumer businesses as we expect RIL to report strong key performance indicators (KPI)s for both its Telecom and Retail businesses,” analysts with HSBC said in a report. Goldman Sachs expects retail business Ebitda to grow 41 per cent year-on-year. However, earning margins for the telecom business are also expected to moderate in the June quarter.

“Operational expenditure is likely to increase, as network costs flow through from the infrastructure investment trust (InvIT) structure and hence, we expect Ebitda margin to come down to 33.6 per cent (down 536 basis points QoQ) and Ebitda maybe lower on a QoQ basis,” wrote Parag Gupta, research Analyst, Morgan Stanley. The telecom business’s average revenue per user (ARPU) is expected to remain flat and is also expected to fall behind Airtel as it has scaled up rapidly across rural India without any change or increase in tariff plans.