Five key changes which will transform Reliance Industries

Reliance Industries Ltd (RIL) is expected to see a sharp rise in the earnings to touch Rs 53,800 crore by FY18 from Rs 40,100 crore in FY16, according to a brokerage report.

Here are some of the changes that will bring about the change in Reliance Industries:

1. Commissioning of mega petrochemicals projects: RIL's commissioning of the $18.5 billion mega petrochemicals projects by FY17 is expected one of the key drivers that will bring about a 15.7% growth in operating profit over FY16 to FY18, according to a report by Prabhudas Lillaghar. This is as the new projects will increase the capacity of the petrochemicals business and support refining margins.

2. Investment in petcoke gasification: RIL is investing $6 billion towards petcoke gasification project which will substitute LNG production. This is expected to bring about an incremental gross refinining margin (GRM) of about $1.3 per bbl (oil barrel) in FY18, said the report. In addition, the company has commissioned PTA and PET capacity projects in the second half of FY17 and will be operation by FY18. These projects are expected to bring in total revenues (EBITDA) at Rs 15,500 crore, the report said.

3.  Strong demand for refining, petrochemicals business: RIL's core business has been growing and in FY16 accounted for 94% of the company's operating profits. “Refining profitability has been on an upswing supported by rising GRMs; FY16 GRMs of US$10.8/bbl is at a seven-year high," said the report.

4. Demand from oil consuming countries: The strong demand momentum in major oil consuming countries like US, China, Japan and India is expected to continue despite the economic growth challenges. The report said that according to the International Energy Agency (IEA) the oil demand in 2016 is expected to revert to the long-term trend of 1.2mbpd after growing at 1.8mbpd in 2015.

5. Refining capacity demand expected to rise: With the global crude oil demand growth expected to rise higher, the demand for higher refining capacity is expected to grow.  Reliance Industries is expected to benefit from this as most of the refineries are in Asia and Middle East.

“Also, heavy maintenance schedule, along with delay in refinery start-up, is likely to support refining margins in the medium term,” said the report.