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Telecom, Retail May boost Reliance’s Earnings In Q3

Reliance Industries Ltd (RIL) is likely to report muted earnings growth in the fiscal third-quarter as gains from its telecom and retail arm will be offset by weakness in its refining and petrochemicals business, analysts said.

According to a Bloomberg survey of 13 brokers, RIL’s consolidated net sales are expected to come in at Rs. 1.42 trillion and net profit is estimated at Rs. 11,181 crore. The company is scheduled to report its earnings on Friday.

For the quarter ended December 2018, RIL had reported a consolidated net profit of Rs. 10,251 crore and revenue of Rs. 1.71 trillion.

“We believe 3QFY20 will see retail and Jio offset earnings weakness in petrochemicals with refining being flat quarter-on-quarter,” Amit Shah, an analyst at BNP Paribas, said in a note on Wednesday.

Analysts expect RIL’s gross refining margin or GRM, the amount a company makes by converting a barrel of crude to fuel, at around $9.4.

Benchmark Singapore refining margins turned negative in December to $0.17 per barrel, and averaging at $1.6/bbl during the quarter.

“Third quarter saw a collapse across refining margins and petchem spreads with both falling to multi-year lows. RIL should have a flattish quarter as refining complexity, and the consumer businesses offset the weaker petchem and refining complex,” JPMorgan said in a report on 8 January.

RIL’s petrochemical performance may not impress either as chemical margins continue to be impacted across products. PX (paraxylene), PTA (purified terephthalic acid), and ethylene all declined quarter-on-quarter while MEG (mono-ethylene glycol) and butadiene margins improved marginally. Analysts expect petchem margins to remain under pressure given the supply glut in the market.

“We expect further and sharper weakness in petchem earnings as key product prices/margins were weaker. We assume petchem Ebit (earnings before interest and tax) to decline 15% quarter-on-quarter and 20% year-on-year,” Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a 11 January note.

On Wednesday, shares of RIL fell 0.33% to Rs. 1,524 on BSE.

The profitability of RIL’s telecom business Jio is expected to be boosted by higher subscriber addition coupled with higher ARPU (average revenue per user) quarter-on-quarter. The implementation of tariff hikes in December will boost ARPU.

“For Jio, we expect EBIT to improve 28% quarter-on-quarter on the back of 19 million net subscriber additions and ARPU increasing quarter-on-quarter to Rs. 124 per month,” said UBS Securities India Pvt. Ltd in a report dated 8 January. Jio’s ARPU last quarter was Rs. 120 per month.

On the retail front, RIL is expected to benefit from strong holiday sales, festive season and continued store additions. Analysts estimate Reliance Retail’s Ebitda to be at Rs. 2,610 crore, a 12.5% increase from the preceding quarter.

During the quarter, RIL announced a partnership with BP to expand Petro retail sites across the country. The company also offered the shareholders of Reliance Retail to swap their units with RIL shares, with a swap ratio of 4:1 valuing the retail business at $36 billion.―Livemint

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