RIL: Fo­cus will be on Jio num­bers in Septem­ber quar­ter

Tele­com ven­ture per­for­mance will in­di­cate how well the mega in­vest­ment is pay­ing off

Business Standard - - THE SMART INVESTOR - UJJVAL JAUHARI

Re­liance In­dus­tries’ (RIL’s) fi­nan­cials for the quar­terended Septem­ber (Q2) to be an­nounced on Fri­day are be­ing looked at with great ex­pec­ta­tions.

While the Street has high hopes from the core re­fin­ing busi­ness, given the bench­mark Sin­ga­pore gross re­fin­ing mar­gins (GRMs) hit­ting a high re­cently, the num­bers of tele­com ven­ture Jio would be closely mon­i­tored.

The tele­com busi­ness has been draw­ing the at­ten­tion of in­vestors, in­dus­try play­ers and cus­tomers, and July-Septem­ber will be the first quar­ter when RIL starts re­port­ing Jio’s fi­nan­cial per­for­mance.

The re­fin­ing and petro­chem­i­cals busi­nesses con­trib­ute over 80 per cent to RIL’s rev­enue and prof­its. Hence, their per­for­mances will also have a strong bear­ing on in­vestors’ sen­ti­ment.

Af­ter re­port­ing mul­ti­year high GRMs of $11.9 a bar­rel in the June quar­ter (Q1), RIL is ex­pected to re­port a higher num­ber in Q2, with Sin­ga­pore GRMs hit­ting a 10-quar­ter high of $8.3 per bar­rel, up 29 per cent se­quen­tially and 61 per cent year- on-year (y- o-y). Since RIL has a com­plex re­fin­ery that can process a cheaper va­ri­ety of heavy crude oil, its GRMs tend to be at a pre­mium to the bench­mark.

A surge in GRMs in Q2 has been led by the global de­mand growth ex­ceed­ing ca­pac­ity ad­di­tions and also Cy­clone Har­vey, which dis­rupted the US sup­plies. The rise in crude prices should also lead to in­ven­tory gains and add to the GRMs.

An­a­lysts at CLSA ex­pect RIL to post GRMs of $12.8 per bar­rel, while Moti­lal Oswal Se­cu­ri­ties pegs it at $12.6 a bar­rel, against $10.1 a bar­rel a year ago.

Bank of Amer­ica Mer­rill Lynch, how­ever, ex­pects ad­verse spreads to limit the com­pany’s GRM ex­pan­sions to $12.5 per bar­rel.

RIL is wit­ness­ing a reg­u­lar rise in its petchem pro­duc­tion as well as mar­gins over the past few quar­ters.

Ac­cord­ing to an­a­lysts, the petchem seg­ment is ex­pected to do bet­ter in Q2, aided by strong vol­umes. Vol­umes pegged at 2.3 mil­lion tonnes for Q2 are seen ris­ing 9.5 per cent y-o-y. The per-tonne prof­itabil­ity is seen ris­ing to $370 (up six per cent se­quen­tially and 17.7 per cent y-o-y), ac­cord­ing to Moti­lal Oswal Se­cu­ri­ties’ es­ti­mates.

The im­prov­ing GRMs and strong petchem per­for­mance should drive RIL’s stand­alone net profit to ~8,400 crore (up nine per cent y-o-y and two per cent se­quen­tially), said CLSA, even as its an­a­lysts model forex (for­eign ex­change) loss of ~4,400 crore.

Bank of Amer­ica Mer­rill Lynch ex­pects RIL to de­liver net profit of ~8,620 crore.

Though an­a­lysts re­main up­beat on the prospects of Jio and the suc­cess of Jio phones, the fo­cus will likely be on its fi­nan­cial and op­er­at­ing num­bers. The num­bers should give a sense of the fu­ture vi­a­bil­ity of the busi­ness and also of the com­pany’s treat­ment of non-op­er­at­ing ex­penses, such as de­pre­ci­a­tion and in­ter­est cost, said an­a­lysts at BNP Paribas.

CLSA said the ac­tual num­bers would be de­pen­dent on the ex­act date of start of ex­pens­ing and por­tion of cost con­tin­ued to be cap­i­talised. Th­ese de­tails will be keenly watched, as in­vestors ex­pect a huge loss at the profit be­fore tax level.

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