Petchem margins to boost Reliance Industries' Q4 profit

Refining margins expected to be north of $10/bbl; average KG-D6 gas and crude production in Q4 to remain flat

Reliance Industries (RIL) is expected to post a strong performance in the quarter ended March (Q4), riding on high petrochemical margins which will help offset weakness in gross refinery margins (GRMs) and the exploration and production (E&P) segment.

The company is set to report its Q4 results on Friday.

“We expect another strong quarter for RIL, although marginally moderate from record strong Q3. With three per cent quarter-on-quarter decline in Singapore complex margins and weaker middle distillates, we expect RIL’s GRMs to moderate in Q4. However, petchem could surprise positively,” Nomura said in its report.

The equity research firm estimates consolidated profit after tax (PAT) to rise 11 per cent to Rs 7,090 crore during Q4 of financial year 2015-16 (FY16), compared to Rs 6,380 crore in the corresponding quarter in the previous year. However, PAT is estimated to be lower by a marginal three per cent from Rs 7,290 crore in the December 2015 quarter.

RIL operates in petroleum refining, petrochemicals, oil and gas exploration and production, telecom and retail sectors. In the organised retail business segment, the company is estimated to record a 35 per cent jump in earnings before interest and taxes (Ebit) year-on-year at  Rs 140 crore during Q4 on account of rising revenue and margin, according to ICICI Securities.      

Analysts expect RIL to post its fifth successive $10-plus GRM for the quarter. The company had recorded a GRM of $11.5 per barrel in Q3, which had risen above $11 for the first time in seven years. GRM measures the earnings from turning every barrel of crude oil into fuel.

Refining and marketing accounts for around 65 per cent of RIL’s overall profit and 70 per cent of total revenue. “We estimate RIL’s Q4 GRM at $11 per barrel to be up nine per cent year-on-year but down four per cent quarter-on-quarter. RIL’s FY16 estimated earnings per share (EPS) growth of 15 per cent would be its strongest in five years,” ICICI Securities said in its note.

The firm estimates RIL’s petrochemical Ebit at Rs 2,620 crore in Q4, up 31 per cent year-on-year driven by higher margins and volumes. Petchem has the second biggest share in the company's overall revenues and net profit at 30 per cent. Also, RIL’s refining Ebit is estimated at Rs 6,230 crore, a 27 per cent increase driven by the rise in GRM.

Benchmark Brent crude oil prices during Q4 averaged lower at $35 per barrel leading to an average of $48 per barrel for FY16 thanks to an extended global supply glut and expectations of continued weakness in demand through the current year. Brent prices ended Q4 at $40 per barrel on likelihood of an output freeze by major oil producers.

On Tuesday, global oil benchmarks ended stronger at $43 per barrel owing to a strike by oil workers in Kuwait, which overshadowed the impact of Iran’s latest refusal to freeze output.

On the exploration and production front, analysts expect average KG-D6 gas and crude production in Q4 to remain flat at 10.5 million standard cubic meter per day (mscmd) and 4,000 barrels per day (bpd) as compared to Q3. Production at the Panna Mukta Tapti block is also expected to remain the same as Q3. However, weaker crude prices could have a negative impact on earnings.