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Informist, Wednesday, Oct. 9, 2024

 

By Anshul Choudhary

 

MUMBAI – Reliance Industries Ltd. is expected to post a nearly 10% year-on-year decline in its consolidated net profit during the September quarter as weak refining margins may hurt the profitability of its largest segment —- oil-to-chemicals business. While its oldest business may struggle, growth in its digital services and retail business may help limit the fall to some extent, analysts said.

 

The conglomerate's consolidated net profit may decline to INR 156.94 billion, according to an average of estimates by nine brokerages. The estimates were in the range of INR 117 billion-INR 178 billion.

 

The company is expected to report a similar fall in operating profit. The consolidated earnings before interest, taxes, depreciation, and amortisation may decline nearly 12% on year to INR 395.46 billion, affected by weakness in oil-to-chemicals business, with some brokerages also factoring in muted growth in its retail business.

 

While Reliance Industries' net profit may decline compared to last year, the same metric is likely to rise quarter-on-quarter on the back of tariff hikes taken at June-end in its digital services segment, which houses Reliance Jio. The consolidated net profit may rise nearly 4% as compared to the previous quarter.

 

Analysts expect the digital services business, which contributed over 12% to overall gross revenue in the previous quarter, to report the highest revenue growth among the company's segments during Jul-Sept. However, weakness in its other segments is likely to affect performance with the company's consolidated revenue seen rising by a mere 1.5% on year to INR 2.35 trillion. Sequentially, the performance is not likely to be any different with sales seen growing only 1.6%. The brokerages' estimates for revenue were in the range of INR 2.24 trillion–INR 2.49 trillion.

 

The company's stock has declined ahead of its earnings with shares falling to a four-month low of INR 2,722.75 on Monday. The stock closed at INR 2,749.20 Wednesday on the National Stock Exchange, down 1.6%. The company will detail its earnings for Jul-Sept on Monday.

 

SEGMENTAL PERFORMANCE

The company's oil-to-chemical business, which contributed to nearly 58% of overall gross sales in the previous quarter, is likely to be a major laggard this quarter. Several analysts expect a fall in the segment's EBITDA for the quarter owing to weak gross refining margins. Brokerages Motilal Oswal, Nuvama Institutional Equities, and Kotak Institutional Equities estimates show EBITDA for the segment may fall 17-27%.

 

Elara Securities expects the gross refining margin to decline to $9 per barrel in Jul-Sept as against $19 per barrel during the same period last year. This is likely to be in line with a 62% year-on-year fall in Singapore GRMs due to weak global product cracks, Nuvama Institutional Equities said in its earnings preview report. Crack spreads are the difference between the price of a barrel of crude oil and the price of the petroleum products refined from it, such as petrol, jet fuel, and diesel.

 

Analysts are positive on earnings of the company's digital services segment as it had announced tariff hikes to the tune of 12-27?fore the quarter began. Due to tariff hikes, Kotak Equities expects the segment's average revenue per user to rise 5% on year and on quarter despite a muted rise in subscribers. It reported an ARPU of 181.70 rupees for the previous four quarters. Brokerages expect EBITDA for the segment in Jul-Sept to rise 6-10% on year.

 

There was no consensus on the company's retail business, with some expecting mid- to high- single-digit growth in EBITDA during the quarter, while others forecast the metric to remain largely unchanged. Commenting on demand environment on the overall retail segment, Elara Securities in a note said the absence of wedding days and inauspicious Shraddh period hit footfall in stores during the quarter. 

 

Following are the Jul-Sept earnings estimates (in million rupees) for Reliance Industries, based on reports compiled by Informist from nine brokerage firms:

 

Brokerage	Net Sales	Net Profit	EBITDA
Antique Stock Broking Ltd	2,240,000	175,390	423,714
Elara Securities (India) Pvt Ltd	2,376,829	153,539	388,256
Emkay Global Financial Services Ltd	2,335,047	152,793	389,227
ICICI Securities Ltd	2,405,000	154,000	395,000
Kotak Institutional Equities	2,393,321	177,818	415,925
Motilal Oswal Financial Services Ltd	2,306,868	159,644	397,138
Nuvama Wealth Management Ltd	2,334,847	151,201	387,049
Prabhudas Lilladher Pvt Ltd	2,299,300	116,900	388,800
YES Securities (India) Ltd	2,492,341	171,155	374,075
Average	2,353,728	156,937	395,464

 

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Deepshikha Bhardwaj

 

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