Q4 Preview: RIL Profit Expected To Drop The Most In 12 Years. But There’s A Silver Lining.
Mukesh Ambani, chairman of Reliance Industries Ltd., smiles at an event in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Q4 Preview: RIL Profit Expected To Drop The Most In 12 Years. But There’s A Silver Lining.

Reliance Industries Ltd.’s quarterly profit is expected to fall the most in 12 years as refining margins remain low, demand for oil has fallen and crude tumbled.

India’s largest firm by market value is expected to see its standalone net profit decline by nearly 24 percent sequentially to Rs 7,303 crore in the three months ended March, according to the average of estimates complied by BloombergQuint. The consumer business of the Mukesh Ambani-controlled group comprising telecom and retail, however, is expected to cushion the conglomerate.

The Singapore GRM – the Asian benchmark – averaged around $1.2 per barrel in the fourth quarter, the lowest in at least the eight years. That means the company will earn less for converting a barrel of crude oil into fuel. Lower demand for fuel during the lockdown to contain Covid-19 pandemic and loss on inventory purchased at a higher price after the crude tumbled will also hurt RIL’s refining business.

Petrochemical earnings are also expected to fall as volumes declined. Sequentially higher margins may offset some of the pain in this segment.

Top line growth for Reliance Jio Infocomm Ltd., the telecom arm, will be largely aided by tariff hike, higher usage and subscriber additions. The company had increased tariffs in December, along with its peers after the industry was ordered by the Supreme Court to pay thousands of crores worth of statutory dues. Since the validity of most of old prepaid recharges ended in January, Reliance Jio stands to gain in the fourth quarter as subscribers would have topped up at higher tariffs.

Analysts also expect Reliance Jio to add close to 1.6 crore subscribers in the quarter ended March. And its average revenue per user is estimated to rise for the second consecutive quarter on higher pricing and increased usage.

Retail segment is expected to grow at its slowest pace in 15 quarters as demand for everything barring essentials and staples fell in March as state after state started imposing restrictions, culminating in a nationwide lockdown on March 25 to contain the spread of the new coronavirus.

The earnings before interest and tax is expected for this business is estimated to jump 34 percent over the previous year, aided by contribution from high-margin segments such as electronics and clothing before the lockdown.

Fund-Raising Plan

In the board meet to approve earnings on April 30, RIL will also consider issuing equity shares to existing shareholders to raise funds and also a dividend for 2019-20.

This will be the first time the company may be looking to sell shares to existing investors in last three decades as it looks to pare debt. While RIL hasn’t disclosed the size of the rights issue, according to Morgan Stanley, it could anywhere between $2 billion and $13 billion. A potential rights issue size equivalent to 2-12 percent of the equity if done at a 5-20 percent discount to current price would be earnings accretive as it lowers debt by 5-34 percent, it said.

(The estimates have been compiled from research notes by BOBCAPS Research, Kotak Securities, Motilal Oswal, Edelweiss, Elara Securities, Emkay, Equirus, Prabhudas Lilladher, Centrum Broking, Antique Stock Broking, Spark Capital, Morgan Stanley, CLSA, Goldman Sachs, CIMB, BNP Paribas and Nomura.)

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