Reliance Industries Ltd (RIL) is set to announce earnings for the second quarter ended September 2019 (Q2) on Friday. RIL shares have already risen 2% on Friday in anticipation of strong earnings, making the Mukesh Ambani-owned firm the first company in India to have a market capitalization of a whopping Rs 9 trillion. Investors are now waiting for the Q2 numbers that may chart the stock’s journey ahead.
RIL’s oil and gas business, which contributes 50-60% to earnings, is expected to be a mixed bag, as per estimates by CNBC TV-18. The refining segment, which has been under pressure for the last few quarters, may see a trend reversal this time as crude oil prices have fallen 10% in the September quarter. The benchmark Singapore GRMs (gross refining margins) have improved 86% compared with the previous quarter, fuelling hopes that RIL’s GRMs may also improve to $9.5 per barrel – the highest in last four quarters. However, the petrochemical business may continue to be a drag as a further moderation in margins is expected due to decline in prices.
HSBC’s predictions for RIL’s Q2 numbers also followed a similar line. “A sharp recovery in refining margins coupled with lower ethane and LNG prices and higher petchem volumes should partly offset weakness in benchmark chemical margins and deliver a 7% QoQ (quarter-on-quarter) growth in standalone earnings,” it said in a note.
Another brokerage house HDFC Securities believes that RIL may reap benefits of lower taxation during the quarter. It also says that higher margins in refining business is likely to compensate for the decline in petrochemicals margins. “Company’s revenues may grow 2.5% year-on-year to Rs 1.47 lakh crore, while its Ebitda (Earnings before interest, tax, depreciation and amortization) margin may expand 120 bps to 14.8%. Additionally, lower interest outgo and the tax rate would boost profitability, with PAT (profit after tax) expected to increase 14% year-on-year to Rs 10,820 crore," the report stated.
Emkay Global said RIL’s consolidated Ebitda may increase 5% compared with the previous quarter to Rs 22,440 crore due to higher refining, retail and Jio earnings. Petrochemical volumes should rise 11% sequentially due to shutdowns in the June quarter. It expects telecom division Jio to post net subscriber addition of 20.7 million for the September quarter with flat Arpu (average revenue per user) at Rs 122.
Morgan Stanley, meanwhile, gave an ‘overweight’ rating on the stock today with a target of Rs 1,369. The company is increasing investor confidence in earnings delivery, the brokerage said, adding that lower taxes and cheaper gas feed costs should de-risk outlook.
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