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Reliance Industries Ltd may post sequential drop in Q1 net

May post slide in refining, petchem margins

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Reliance Industries Ltd is likely to see a sequential fall in net profit during first quarter of the fiscal following weak performance of three key core business – refinery, petrochemicals and exploration & production, most brokerages cited in their pre-earning notes.

The refining major is seen posting revenue of Rs 98,387 crore, on-year increase of 12.3%, and sequential rise of 3.4%.

Its net profit is seen at Rs 5,435 crore, up 5.5% from a year-ago quarter, but down 3.5% from January-March, according to Bloomberg estimate of 23 brokerages.

"We expect Reliance's Ebitda to be down 6% quarter on quarter due to a sequentially weaker quarter in all three core businesses, i.e. refining, petrochemicals and upstream. We estimate gross refining margin to be $8.6/barrel and KG-D6 gas production at 13 million metric standard cubic metre per day (mmscmd) against 9.3 and 13.7, respectively, in fourth quarter," Jefferies Equity Research said in a note.

"In case of companies like RIL, sequential comparison of results is more important as their businesses are seasonal. Year-on-year comparison does not make much difference on the company stock," Dhaval Joshi, an analyst with Emkay Global Finance, said.

Most brokerages are expecting the company's gross refining margins in the range of $8.4-$8.8/bbl as against $8.4/bbl in the year-ago quarter, and $9.3/bbl in previous quarter in line with fall in benchmark index.

"Singapore complex margins have declined 6% quarter on quarter, mainly due to the decline in middle distillate cracks. With qoq lower light heavy crude differentials, we expect RIL's premium over SGP complex margins to decline," Nomura said in a note.

This will lead to sequential decline in the operating profits of refinery business.

"GRMs are likely to remain subdued till third quarter following weak global demand. If growth in China continues then some revival can be expected in GRM," Joshi said.

Petrochemical operations, often called as cash cow of the company, will also see fall in operating profit. "Petrochemicals segment EBIT to contract on weak spreads. Sharp contraction in polyester and intermediaries cracks, which is higher than improvement in polymer cracks. Petrochemicals EBIT is expected to contract 8.5% qoq," ICICI Securities said in a report.

The company has been seeing sharp fall in KG-D6 gas output since two-three years. In April-June too, gas output from the block is seen dropping to 12.8-13 mmscmd from 13.5 mmscmd in previous quarter.

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