Reliance Industries Q1 Preview: Lower Refining Margin, Spreads To Weigh On Earnings

Reliance Industries Ltd.'s net profit and revenue for the quarter-ended June will likely be affected by lower refining and marketing margin in the oil-to-chemicals business, despite better performance from its telecom segment.

Net profit of the Mukesh Ambani-led conglomerate is likely to fall 6.84% sequentially, according to the consensus of analysts' estimates tracked by Bloomberg, while revenue will drop 1.86%.

The brokerage Systematix quantified the impact on the conglomerate's operating profit. “RIL's Ebitda/PAT is expected to decline by 7.6%/18% QoQ largely due to lower refining margins and slowdown in retail business,” it said. “The benchmark Singapore refining margins declined 53% QoQ to $3.4/mmBtu, which is expected to result in 19% drop in O2C Ebitda.”

RIL's consolidated Ebitda is estimated to fall around 8% QoQ to Rs 38,900 crore, owing to refining weakness and lower upstream realisations, Emkay Global said in a report.  

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RIL Q1 FY25 Highlights (Bloomberg Estimates, QoQ):

• Revenue to drop 1.86% to Rs 2.32 lakh crore.

• Operating profit to fall 15.43% to Rs 39,789.7 crore.

• Operating margin likely to contract by 280 bps to 17.1%.

• Net profit likely to decline 6.83% to Rs 17,654.9 crore.

Segment-Wise Performance

Oil-To-Chemicals

The oil-to-chemicals business is likely to see a sharp decline in earnings on the back of lower gross refining margin, said ICICI Securities in a report.

Earnings is likely to fall 23% sequentially, with an estimated $4.7 per barrel sequential decline in gross refining margin, the report said. However, that's expected to be offset by higher throughput and better petrochemical spreads.

Reliance Jio

Reliance Jio Infocomm Ltd. is likely to perform better, aided by higher subscriber addition projected at 8 million, and a 0.6% rise in average revenue per user to Rs 182.7, according to ICICI Securities. Operating profit is expected to rise 2% over a quarter ago.

Reliance Retail

A slowdown in the retail business will pull down Reliance Retail Ltd.'s profit by 1% quarter-on-quarter, brokerages said. Still, operating profit is expected to rise 3% to Rs 6,000 crore.

Outlook & Catalysts

Although the first quarter Ebitda is expected to decline sequentially, mainly driven by the pullback in refining margins, brokerage house Goldman Sachs expects market focus to move towards Reliance Industries' second quarter performance, where it expects the recovery in refining margin; telecom tariff hike (effective July 3), and strong same-store sales in retail to drive sequential Ebitda growth.

In terms of catalysts, the brokerage believes that since the telecom tariff hike is now done, the market focus will shift towards the upcoming AGM (typically in July or August), which may coincide with the potential start-up of the new energy giga complex, where it expects more details on RIL's new energy business outlook and progress.

Furthermore, any value unlocking through a potential listing of consumer businesses (e.g., Jio/Retail) could be another catalyst ahead. Despite RIL's recent share outperformance, the brokerage notes that the current discount to NAV is still wider than its historical average.