Other Income, Refining Biz may Boost RIL’s Net

Petrochem, E&P segments could weigh heavy in the Sept quarter, feel analysts

    As Reliance Industries (RIL) readies to publish its results for the July-September 2012 quarter on Monday, analysts expect the company’s performance to be better sequentially, but lower compared to the year-ago level. The refining segment and other income are likely to boost profitability, but the petrochemicals and E&P segments are likely to weigh heavy on the company’s performance in the September quarter. The aggregate net profit of the energy behemoth is estimated between . 5,317 crore and . 5,550 crore for the September quarter, which will be significantly better than the . 4,473-crore profit posted in the June 2012 quarter. However, compared to the net profit of . 5,703 crore in the September 2011 quarter, RIL is likely to see a 2.5% to 7% fall. 
Gross refining margins (GRM) — the difference between the cost of a barrel of crude oil and the price at which the processed output can be sold — have improved during the September 2012 quarter from previous three quarters. According to a DSP Merrill Lynch report, the September 2012 quarter Reuters’ Singapore complex GRM at $9.13 per barrel was flat against the year-agoperiod, but up 37% from $6.65 of the June 2012 quarter. RIL, which is known to report GRM marginally above the Reuter’s Singapore benchmark, should post between $9 and $9.5, according to majority of brokerage analysts. This will be lower compared to the $10.1 it posted in September 2011 quarter, but higher than the $7.6 of June 2012 quarter.
The company’s KG basin output is expected to average 29 mmscmd during the quarter from 32.1 mmscmd in the previous quarter. Similarly, the petrochemical segment’s profitability is likely to remain under pressure. “Average prices of petrochemical products remained flat on a sequential basis during September 2012 quarter in rupee terms, as an increase in crude oil prices was offset by lower demand for petrochemicals,” noted Angel Broking’s preview report. This is expected to result in a weaker operating profit for the quarter compared to the corresponding period of the previous year. However, a spurt in other income, thanks to growing cash reserves of the company, will limit the fall in profit. Bank of America Merrill Lynch expects an 81% jump in other income, which was . 1,102 crore in the year-ago period. Similarly, it expects a fall in effective rate of tax to 18% of pre-tax profits from 22% in the year-ago period to further cushion the fall in net profit.