Mumbai: Reliance Industries Ltd (RIL) is likely to report a muted first-quarter performance as gains from its telecom and retail arms will be negated by its weak refining and petrochemicals business, according to analysts.
RIL will report its first quarterly earnings on Friday. According to a Bloomberg poll of 11 brokers, RIL’s consolidated net sales are expected to come in at ?1.45 trillion and net profit is estimated at ?9,706.20 crore by 13 brokers.
“On a standalone basis, the first quarter was largely a subdued one driven by weak margin trends in both the refining and chemical businesses. On a consolidated basis, part of the weakness should have been offset by the increasing earnings contribution from consumer businesses,” said HSBC in a research report dated 8 July.
Analysts expect RIL’s GRM or gross refining margin — what a company makes form turning every barrel of crude to fuel — to be $8- $8.5 per barrel.
“We expect RIL’s GRMs to be down 2% quarter-on-quarter at $8 per barrel due to unfavourable Brent-Dubai and refinery shutdown,” said Emkay Research in a report dated 8 July.
Crude oil prices (Brent) corrected 8.2% year-on-year (y-o-y) to average $68.5 per barrel in Q1FY20. Singapore GRM declined 43% y-o-y to $3.5 per barrel. Though GRM has recovered of late, the gasoline crack spread remains at lower levels. A slowdown in the demand environment along with new capacities set to come on schedule would put further pressure on GRMs.
RIL’s petrochemical performance may not impress either as chemical margins have been on a downtrend, especially in the month of June, due to a possible slowdown in demand.
“We expect petchem earnings before interest, tax, depreciation and amortisation to be down between 9% and 11% quarter-on-quarter as sequential core margins have been down for most chemical products due to trade war-related concerns,” said Goldman Sachs in a report dated 15 July.
Shares of Reliance Industries (RIL) were down 0.89% on Wednesday and ended at ?1281.55 apiece on the BSE. RIL’s shares have dropped 8.08% to ?1,253.10 for the quarter ended 30 June 2019, while benchmark index Nifty gained 1.42% over the same period.
RIL’s telecom business Jio is expected to report increased profitability quarter-on-quarter, riding on JioPhone sales and subscriber additions.
Jio is expected to report around 7% quarter-on-quarter revenue growth with a marginal dip in average revenue per user (ARPU) by 1-2% to ?125.
“While we expect continued strong subscriber momentum for JioPhone, we foresee a gradual slowdown in smartphone subscriber adds for Jio due to declining new smartphone adds for the overall industry. In 1Q, EBITDA is likely to see a q-o-q decline due to the transfer of Jio’s tower and fibre assets to a separate SPV (towards the end of 4Q19), on which Jio will start recognizing rent in the income statement. We note that it is difficult to estimate the exact EBITDA impact in 1Q due to limited details around the rental structure of these assets, but forecast a 370bps q-o-q EBITDA margin compression to 35.3%,” added Goldman Sachs.
Analysts are looking forward to any management guidance on the industry tariff outlook as they assume tariff hikes for the industry in the second half of FY20.
On the retail front, RIL is expected to benefit from strong store additions. Also, end of season sales, which commenced a week earlier than the base quarter, is expected help the numbers. “However, the overall slowdown in the economy coupled with the Indian Premier League and Cricket World Cup, which were expected to impact sales as most matches were scheduled on Sundays, led to lower footfalls,” said Edelweiss Securities Ltd in a note dated 5 July.