Reliance Industries: RIL likely to report 30% jump in Q3 profit today

Higher Oil Demand In US, EU To Help Co, Refining Margins Too Seen Up

INDIA’S largest company by market capitalisation, Reliance Industries (RIL), is likely to maintain its profit-growth momentum when it reports quarterly earnings on Friday, helped by improved refining and petro-chemical margins. Its natural gas output, however, has been under pressure.
Refining and petrochemicals segments, which together represent nearly 94% of its sales and 75% of profits, will boost the numbers, analysts said. But, despite expectations of good numbers, the scrip has continued to underperform the overall markets.
A Bloomberg poll of 11 broking firms expects Reliance Industries’ net profit for October-December to be . 5,220 crore, up 30% year-on-year. They forecast net sales at . 62,990 crore, up almost 11% YoY. In the first half of the year, the company had posted 30% growth in net profit, while revenues rose 48% compared with the year-ago period.
“We expect private refiners to benefit strongly, as increased oil demand from the US and Europe on account of a strong winter there has led to a sharp improvement in spreads,” said ICICI Securities in an earnings preview report.
“Light-heavy spreads have also improved, leading to increased advantage for complex refiners. RIL would be the biggest beneficiary of this trend,” said the broking firm.
Analysts see the company’s gross refining margin (GRM) in October-December period improving to $8.7-9.3 per barrel from $7.9 in the previous quarter and $5.9 per barrel reported in the quarter ended December 2009, due to higher diesel and gasoline cracks. Refining margins in the December 2009 quarter was the lowest in several years for the refining industry globally. Gross refining margin is the differential between the sales proceeds of refined products and the cost of crude oil required to produce them.
“Petrochemical margins are also expected to benefit from expansion in polyester intermediate margins,” said Edelweiss Securities.
Reliance Industries’ natural gas output from D6 block in the Krishna-Godavari basin (KG-D6) declined to around 55 million metric standard cubic metres a day (mmscmd) in the December quarter from 60 mmscmd in the previous quarter.
In spite of expanding net profit by 30% YoY in the first half of FY11, the RIL scrip has grossly underperformed on the bourses. While the BSE Sensex has gained around 7% since April 2010 so far, RIL lost a little over 10%. The high earnings growth estimates of December 2010 quarter have done little to revive it. The scrip has remained range-bound between . 950 and . 1,100 for the past 20 months, even as Sensex moved from around 12,000 to 18,800.
Investors will closely track management’s update on gas production from KG-D6, which is likely to rise to 60 mmscmd in April, and achieve its peak production of 80 mmscmd in 2012-13.