Reliance Industries Q4FY17: What will boost profitability this quarter?

Reliance Industries is set to announce its fourth quarter ended March 31, 2017 result on Monday. At 1100 hours, Reliance Industries was trading at Rs 1,416.15 per piece on BSE, up Rs 16 or 1.17%.

After beating estimates with nearly 18% growth in consolidated net profit of Q1, the company reported a drop of 23% in the same during Q2 of financial year 2016-17 (FY17). 

Missing analyst estimates, Reliance Industries in Q3 reported just 3.60% growth in consolidated net profit to Rs 7,506 crore compared to  Rs 7,245 crore in the corresponding period of the previous. 

Consolidated total income from operations was at Rs 84,189 crore, registering growth of 16.10% year-on-year (yoy) and 3.10% quarter-on-quarter (qoq). 

Mukesh Ambani, Chairman and Managing Director, Reliance Industries Limited during Q3 announcement said, “The refining business has delivered eight consecutive quarters of double-digit GRMs, benefiting from the global demand for transportation fuels and improved product cracks." 

What can be expected from Reliance Industries' last quarter of FY17?

Majority of analysts expect Reliance Q4 net profit to be supported by higher petchem profitability. 

Analysts at HDFC Securities said, “Reliance Industries' fourth quarter earnings are expected to be steady to strong as higher petchem profitability may drive sequential operational improvement. Petchem segment should benefit from strong cracker margin.”

Motilal Oswal said, “ Petchem profitability is expected to increase YoY, led by improved deltas. However, Reliance's refining segment profit is likely to remain subdued due to decline in GRMs.”

In terms of gross refining margin (GRM), Motilal expects it to be at $10.2 per barrel against $10.8 per barrel in 3QFY17 and $10.8 per barrel in 4QFY16. While HDFC Securities expect GRM to be slightly higher at $10.9 a barrel against $10.8 a barrel in previous quarter.

On the other hand, Edelweiss feels GRM would be around $ 11 a barrel up by 2% from preceding quarter led by a $ 4.6 per barrel premium over Singapore benchmark. 

Jal Irani, Yusufi Kapadia  and Vivek Rajamani analysts at Edelweiss Financial Services said, "We estimate robust operating performance with standalone EBIT up 6% on quarter-on-quarter (QoQ) basis, while significantly lower other income will squeeze PAT (at Rs 7,900 crore, down 2% QoQ). We expect GRM at $11/bbl (up 2% QoQ), a $4.6/bbl premium over Singapore benchmark. We estimate refining and petchem EBITs to improve 5/6%, respectively, on robust GRMs and petrochemical spreads. We estimate consolidated PAT at Rs 7,600 crore, which will be lower due to losses in shale segment."

While Motilal expects standalone net profit of Rs 7,518.4 crore which would be up by  2.71% on year-on-year (YoY) but down by 6.27% on quarter-on-quarter (QoQ) basis. Standalone revenue is seen at Rs 68,725.1 crore, growing by 37.56% yoy and 11.19% qoq. 

Earning before interest tax depreciation and amortization (EBITDA) is expected at Rs 10,669.8 crore versus Rs 10,604 crore in Q3FY17 and Rs 10,727 crore in Q4FY17. EBITDA margins is also estimated to be lower at 15.5% in Q4 as against 21.5% of Q4FY16 and 17.2% of Q3FY17, as per Motilal. 
 

Motilal added, "Reported consolidated numbers would include shale gas business, but with a one-quarter lag."

On consolidated front, Phillip Capital stated that adjusted net profit is seen at Rs 7,835.7 crore up 13.1% yoy and 4.4%. While revenue is expected at Rs 89,998.8 crore rising by over 40% yoy and 5.8% qoq. 

As per Phillip, consolidated EBITDA would be at Rs 12,035.5 crore increasing by 7.4% yoy and 4.2% qoq. While margins will be weak at 14.3% in Q4 compared to 14.5% Q3FY17 and 18.8 Q4FY16. 

Investors will eye from RIL Q4FY17 on outlook over GRM, petchem margins, progress on core expansions, details on energy project execution and updates on its telecom arm Reliance Jio.

Recently Reliance also announced successful completion of its ethane project including commissioning of its ethane receipt & handling facilities and ethane cracking at its Dahej manufacturing facility in Gujarat in record time of less than 3 years. 

Lastly Motilal said, "RIL's new refining/petchem projects are likely to add to earnings from 2HFY18/FY19, but Telecom business would be a drag on profitability."