Mukesh Ambani-led Reliance Industries will be announcing its June quarter earnings report post market hours on Friday and speculation about muted growth has weighed on the share price since Thursday, keeping it in the red. Industry insiders expect the country's largest company by market cap to report lower profitability - at least on a quarterly basis - due to challenges in refining and petchem segment as well as pressure from its telecom unit, Reliance Jio Infocomm, courtesy the demerger of its fiber and tower assets.
According to IIFL, the street is expecting RIL to report a 14.4 per cent year-on-year increase in consolidated revenues aided by a 7 per cent growth in refinery throughput, petchem volumes and revenue growth in Jio and its retail business. Its EBITDA margins are expected to decline by 249 basis points year-on-year to 16 per cent and consolidated profit after tax (PAT) is expected to be at around Rs 9,500 crore. The oil-to-telecom conglomerate had reported a 9.8 per cent rise in its consolidated net profit at Rs 10,362 crore in the fourth quarter ended March 31, 2019, which was the highest quarterly profit by any Indian private sector company.
Analysts told Moneycontrol that the key issues to watch out for would be gross refining margins (GRMs), petrochemical margin, telecom subscribers, future capex, and interest cost and depreciation. Take a look:
Gross refining margin: While IIFL predicts that this figure will come down to $8 per barrel, against $8.2 a barrel in the previous quarter and $10.5 a barrel bbl in Q1FY19, brokerage Motilal Oswal pegs it higher at $8.5 a barrel. Meanwhile, Singapore GRM for the quarter stood at $3.5 per barrel, up around 8 per cent from the previous quarter due to an improvement in gasoline cracks, but still down around 42 per cent year-on-year.
Petrochem margin: Motilal Oswal expects refining throughput to grow 9 per cent quarter-on-quarter and petchem volume to accordingly rise 11 per cent but the petrochemical segment is expected to suffer due to reduced product margins. Emkay Global and Goldman Sachs reportedly also see petchem earnings before interest, tax, depreciation, and amortisation (EBITDA) diving 9 per cent (q-o-q) on weaker margins.
Profit: Given the above, the buzz is that RIL could see its slowest profit growth in 15 quarters. Hong Kong-based CGS-CIMB Securities expects RIL's Q2 consolidated EBITDA to slip 2.8 per cent year on year while net profit may grow 3 per cent year on year but shrink 6 per cent quarter on quarter, The Economic Times reported.
Capex: Although RIL no longer gives capital expenditure guidance, its rising debt due to higher outflow on this front has been a cause for concern. "While RIL has generally managed to outperform our earlier quarterly earnings estimates, the positive earnings have been marred by unusually large increases in capex, with the result that effective net debt levels have remained elevated and above our estimates," GS-CIMB said in a recent note. The start of a deleveraging cycle after seven years of record capital expenditure should ease investor concerns of subpar return ratios at Jio.
Analysts will not only be keeping an ear out commentary on Jio's capex outlook but also announcements on its new offering, Jio GigaFiber, which is currently in the trial phase. When launched, it will be the world's largest Greenfield fixed-line broadband rollout, with the real-time introduction in 1,100 cities across India. The buzz is that Jio may also see its first drop in profit in seven quarters. The telco is expected to earn lower profit on every rupee of revenue earned in the first quarter as it starts paying for using the towers and fibre assets.
According to experts, with RIL's core business bearing the periodic suffering, positive developments in the telecom and retail segments are likely to drive growth further. Reliance Retail has added 510 stores during Q4FY19 and 2,829 stores during the entire fiscal.
(Edited by Sushmita Choudhury Agarwal)