Reliance Industries: Analysts Divided over RIL Q3 show

WITH the benchmark gross refining margins (GRMs) touching new lows and petrochemical margins under pressure, Reliance’s (RIL) results for the quarter to December will be watched with extra interest by investors and analysts.
Although the company posted lower profits on year-on-year (yo-y) basis during the past five quarters, its profit has grown sequentially between the December 2008 quarter and September 2009 quarter. Increasing natural gas production from the KG basin proved to be the main driver.
Although the stock has not gone anywhere in the past few months, investor interest in the scrip has perked up of late as indicated by the strong uptick in traded volumes and delivery.
Over the past 15 trading sessions, the average daily traded volumes have more than doubled compared to the average for December 2009, while the percentage of delivery has risen to 39.4% from 24.8%. In fact, the average delivery volumes during 2009 averaged at just around 18% of the total traded volumes.
The analyst community remains divided on whether RIL can post a fifth consecutive sequential profit growth for the December 2009 quarter by posting profits in excess of Rs 3,852 crore recorded in the September 2009 quarter.
Vinay Nair, research analyst with Khandwala Securities, expects the company to post slightly lower numbers compared to the September 2009 quarter. “The impact of lower GRMs at around $5.2 per barrel and weaker petrochem margins is expected to be offset by rising KG basin output, estimated to average at 46 million cubic meters per day (MMSCMD),” he mentioned.
Motilal Oswal’s estimates peg RIL’s profit at Rs 4,130 crore for the December 2009 quarter. IDFC SSKI expects the profit at Rs 3,971 crore, while Sharekhan has predicted a profit of Rs 4,011 crore.
The Street expects RIL’s refining margins to be between $5 and $6 per barrel, marginally weaker compared to the $6 it reported in the September 2009 quarter due to the global weakness in the refining industry.
The December 2009 quarter saw BP’s global indicator margins dip to the lowest in 15 years, while the refining margins calculated by International Energy Agency (IEA) were in negative for most locations across the world.
Against this backdrop, the results published so far by Indian companies have been encouraging and have sparked off some optimism in the analyst community. Deepak Pareek of Angel Broking said, “Going by the higher refining margins posted by MRPL or the improved petrochemical margins of Gail, we expect RIL to post slightly better results compared to our earlier estimate of Rs 3,749 crore. We remain bullish on the scrip considering its cash accumulation that indicates some buyout.”
RIL is currently reviewing a number of global opportunities for growth, one of them being a proposed acquisition of bankrupt Netherlands based Lyondell-Basell. RIL has raised Rs 9,330 crore through sale of treasury shares in the past four months and still has nearly 30.9 crore treasury shares valued at Rs 32,500 crore.