RIL Q4 Preview: Higher Refining Margins, Retail Arm To Boost Earnings
Reliance Industries Ltd.’s fourth-quarter earnings are expected to rise, aided by the improved performance of its oil-to-chemicals segment. Rising crude oil prices and higher petrochemical product demand is expected to contribute to higher refining and petrochemical margins.
Net profit of India’s biggest company by market value is expected to jump by more than two times year-on-year to Rs 13,704 crore in the quarter ended March, according to the consensus of analysts’ estimates tracked by Bloomberg. Revenue may increase 2.1% year-on-year to Rs 1.39 lakh crore, while operating income is estimated to fall 9% over a year ago.
A rebound in the company’s retail arm is also expected to cushion the parent’s financials. The company is set to announce its earnings on Friday.
Operating profit of the oil-to-chemicals segment is expected to rise sequentially amid higher volumes and margins of its refining and petrochemical segments.
Refining margins will be aided by strong inventory gains and recovery in gasoline spreads. Benchmark Singapore gross refining margin rose to $1.8 per barrel from $1.2 per barrel in the last quarter. Prices of Brent crude rose 36.1% sequentially to $44.6 per barrel in the quarter ended March.
The petrochemicals segment will benefit from rising polymer prices amid higher demand. Prices of petrochemical products rose between 10% and 38% on a sequential basis and between 7% and 64% on an annual basis, according to JP Morgan. Also, the key polymer naphtha spreads were higher than their long-term average in the fourth quarter—owing to strong pent-up demand once economies opened up following Covid-19-induced restrictions in the second half of 2020-21.
Reliance Jio Infocomm Ltd.’s growth slowed in the last few quarters in the absence of price hikes and falling subscriber addition. Its average revenue per user will decline 6% sequentially to Rs 142 per month following the elimination of interconnect user charges, which will hit revenue growth, according to estimates.
However, a slight improvement in subscriber additions is expected following price cuts on the Jio phone.
The holding company for the group’s telecom assets, Jio Platforms Ltd., is creating multiple monetisation opportunities in the digital space through aggressive product launch plans.
Pandemic-led store closures in the last year have severely affected Reliance Retail. That was cushioned by a quick scale-up by JioMart with widening reach and expanding product categories. Recovery in grocery, fashion, electronic segments offers a strong growth opportunity.
Reliance Retail’s growth will be led by a sustained sequential recovery in revenue and improvement in margins from a low base.
(Compiled from reports by Motilal Oswal, JP Morgan, Jefferies, Kotak Securities, Morgan Stanley, and InCred Research.)