Q3 sneak peek: Why RIL is likely to disappoint mkt

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Moneycontrol Bureau

Reliance Industries (RIL) will post its December quarter results on Friday but analysts don't seem to be upbeat about its numbers. Brokerages tracking the energy giant have estimated its net profit to decline anything between 11%-20% due to a fall in gross refining margins (GRMs) and lower gas output from KG-D6 oil wells.

Analysts expect RIL's GRM to be around $5.9-6.9/bbl, down 27% year-on year. GRMs represents the difference between the average price realised on sale of finished products and the cost paid for crude oil.

"Given the large correction in gasoline/naphtha cracks and the tightening of light-heavy crude oil spreads, our models suggest RIL may report third quarter of $4.5-6.5/bbl; down significantly from the $10.1, quarter-on-quarter," said Credit Suisse in a note further saying that at the upper band of the estimated refining margin, the company's net profit is seen Rs 4450 crore, down 22% q-o-q.

Credit Suisse has cut target price for RIL to Rs 910 from Rs 1,022 but has maintained an 'outperform' rating.

Bank of America Merill Lynch (BoAML) says that RIL's gas output from KG-DG was down 26% y-o-y as the company had shut down a few wells due to water ingress. " Interest cost would also be up 41% y-o-y hit by a weaker rupee, which will increase its foreign currency debt," states BoAML

Emkay Securities believes that the rupee depreciated around 10% against the dollar during the quarter and it should have ideally benefitted RIL as its product realisations are linked to the dollar, but decline in core margins for both refining and petchem would result in lower profitability q-o-q. It expects the firm to post a net profit of Rs 5200 crore as against  Rs 5,703 q-o-q.

Given the weak outlook and continued fall in gas production with no maintenance work planned to arrest the decline, HSBC is also pessimistic on the company being able to improve its petchem margins. "We expect RIL to report sequentially lower earnings in the next two quarters," said HSBC which has cut the target price for Reliance Industries (RIL) to Rs 800 from Rs 870 while maintaining a 'neutral' rating as it expects gas production to decline and reach half its previous peak of 60 mmscmd before ramping up.

 

(moneycontrol.com has taken the average of atleast five brokerages to estimate RIL's Q3 numbers)

Rs (cr	Sales Q3FY12(e)	Sales Q3FY11	%age change	EBITDA Q3FY12(e)	EBITDA Q3FY11	%age change	PAT Q3FY12	PAT Q3FY11	%age change
RIL	75652	59789	26.5	7499	9545	(21)	4507.4	5136	(12)