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RIL set for refining margin, Re lift in Q4, but petchem may offset gains

Thursday, 17 April 2014 - 7:10am IST | Place: Mumbai | Agency: DNA

Reliance Industries Ltd (RIL), the largest private sector refiner in India, is likely to post highest gross refining margins (GRM) for the last fiscal in January-March quarter, riding a spike in demand.

RIL's GRM, which averaged at $7.9/barrel during the first three quarters of fiscal 2014, is likely to gain in the last quarter to $8.6-$9/bbl, much above the benchmark Singapore GRM, most brokerages said.

"Singapore complex GRMs increased from $5.4/bbl in third quarter of the last fiscal to $6.2 in the fourth quarter, primarily on significant improvement in gasoline, naphtha and LPG cracks. Additionally, wider Arab Light-Heavy differential should also support RIL's GRMs," JM Financial Research said in a report.

A Nomura Securities report also noted that RIL's could report strong premium over Singapore complex margins due to sequential increase in light -heavy crude differentials.

However, weak performance of petrochemical operations would offset higher refining gains, leading to tepid growth in earnings during January-March.

Weighed down by fall in petrochemical profitability and lower other income, market estimates peg RIL's net profit in January-March at Rs 5,661 crore, up 1.3% year on year and 2.7% sequentially.

The company's revenue, however, is likely to gain 19.8% on-year to Rs 100,904 crore, mainly due to rupee depreciation and higher refinery throughput.

During January-March 2013, the rupee had averaged at 54 against the dollar as opposed to 61 this year. Sequentially, revenue is seen down 2.5% following planned refinery shutdown in March. This will be the third consecutive quarter for the company to post revenue in excess of Rs 1 lakh crore.

"RIL has seen a fall in margins across three business of petchem, refining and E&P on a year-on-year basis. However, sharp depreciation in rupee would benefit the company in March quarter," Dhaval Joshi, an analyst with Emkay Global Financial, said.

High GRM will help the company's refinery earnings before interest and taxation (EBIT) grow 15% to Rs 3,620 crore, Morgan Stanley said in a report.

"Currently, RIL has shut one of the four CDUs (Crude Distillation Units) for about 3.5 weeks starting March 20, implying negative impact for 11 days during the quarter, leading to lower throughput," the brokerage said.

Petrochemical profitability would be down sequentially mainly due to sharp contraction in polyester and intermediaries cracks, which is higher than improvement in polymer cracks, ICICI Securities said in a report. Petrochemicals EBIT is expected to contract 4-5% quarter on quarter to Rs 2,020 crore.

The company's exploration and gas business which has been facing tough times due to sharp fall in gas production from its Krishna Godvari-D6 basin may see slight improvement, brokerages said. Gas production from KGD6 is seen increasing to 13.5-13.9 mscmd from 12.3 mscmd in quarter ended December.

Other income is expected to be lower by 7% QoQ at Rs 2,150 crore, ICICI Securities said.

Breaking its one year trading range, shares of RIL have appreciated 17.5% from Rs 807.45 in February to Rs 948.5 at present after 2G spectrum auctions and despite delay in gas price hike.

JP Morgan in a recent report said the rally in the stock shows that the market finally believes in the organic earnings growth opportunity RIL will offer over the next 2-3 years.

Citi Research, however, cautioned that gas price imbroglio and stronger currency could cap near-term upside in the counter.

For the fiscal 2013-14, RIL's net profit is seen growing by 8% to Rs 22,532 crore and revenue by 6.6% to Rs 4,23,111 crore. "Based on improvement in performance of retail and shale gas ventures, we would expect subsidiaries to report a profit in the consolidated annual results for fiscal 2014 against a small loss in fiscal 2013, Jefferies Equity Research said.

The company on Tuesday announced commissioning of its new polyester filament yarn (PFY) facility at Silvassa. With this, Reliance's total PFY capacity, including the Malaysian facilities, is in excess of 1.5 million metric tonne per annum.

Most brokerages would look for E&P road map of the company in view of delay in gas price hike, road map for telecom business, especially after getting 2G licence in the last spectrum auction for 14 circles.


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