The October-December 2011 quarter could be the worst one for Mukesh Ambani's Reliance Industries (RIL) in the past two years, say analysts.
Gross refining margins (turning every barrel of crude oil into fuel) for the country's most valued firm may also, for the first time ever in a decade, report a discount to Singapore complex margin.
“We expect net profit to be down 20 per cent this quarter,” said Anil Sharma and Ravi Adukia of Nomura Equity Research.
“Due to sharp declines in light fuel cracks, we expect RIL’s refining margins to decline by a sharp 36 per cent quarter on quarter to $6.5 per barrel,” Sharma and Adukia added.
Singapore GRM contracted 12.3 per cent quarter on quarter to average at $7.9 per barrel. This contraction is due to weaker gasoline and naphtha cracks.
"Given the large correction in gasoline/naphtha cracks and the tightening of light-heavy crude oil spreads, our models suggest RIL may report third quarter GRM of $4.5-6.5 per barrel; down significantly from the US$10.1 reported in second quarter," Credit Suisse said in a note. Credit Suisse sees RIL's net profit at Rs 4450 crore, down 22 per cent on quarter.
During the third quarter of financial year 2012, crude oil price declined 3.3 per cent quarter to average at $109.3 per barrel due to deepening of Euro-zone debt crisis and faltering global economic recovery. Analysts say this time there is a huge divergence that has opened up between individual product spread —naphtha and fuel oil. Naphtha, say analysts, constitutes about 17 per cent of RIL's product slate where as only 5 per cent for Singapore GRM's product slate. Similarly fuel oil has a higher proportion in Singapore and lower product slate in RIL.
“That drastic move in naphtha, gasoline spread as well as that of fuel oil has resulted in this kind of slippage as far as GRM is concerned. Ideally, the rupee impact should have benefited RIL as they export a significant amount but the change could be due to the fact that demand for naptha has come down drastically and spreads have also contracted,” said an Assistant Vice President-Research of a Mumbai-based securities firm.
RIL's scrip was trading at Rs 716.90, up 2.52 per cent on the Bombay Stock Exchange. Upstream companies including Oil and Natural Gas Corporation (ONGC), Cairn India and Oil India will be, however, gaining from a weaker rupee and high oil prices.
A weaker rupee and no price hikes on petrol and diesel will increase the under-recoveries to 50 per cent on quarter for the oil marketing companies — IndianOil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.
“If the oil marketing companies are not given an additional cash support of Rs 15000 crore they may report losses as they did in the past two quarters,” said a Mumbai-based analyst.
For the third quarter of this fiscal, under-recoveries on sale of diesel, kerosene and LPG have increased to Rs 300,00 crore as against Rs 21,400 crore in the second quarter.
