Oil and gas major Reliance Industries will report its earnings for July-September quarter later today. Nitin Tiwari, VP- Institutional Research, Religare Capital Markets anticipates the company to announce flattish quarter-on-quarter growth.
He expects Reliance petrochemical margins to be better on a sequential basis. However, RIL may post weak earnings on the back of frail US refining margins, he says in an interview with CNBC-TV18’s Anuj Singhal and Ekta Batra.
According to CNBC-TV18 poll estimates, analysts expect the company to report standalone net profit at Rs 5,600 crore as against Rs 5,649 crore in previous quarter.
Meanwhile, key factors to watch out in its result today are updates on polyester/intermediaries capacities commissioning, status on petcoke gasification and refinery off-gas cracker (ROGC) projects, outlook on E&P business capex and KG-D6 production.
While the stock has underperformed the market recently, it may witness headwinds hereon, Tiwari says adding that the brokerage house is comfortable with company’s valuations and thus has a hold rating on the stock with a target price at Rs 950 a share.
Below is the verbatim transcript of the interview:
Q: What is your expectation from Reliance Industries and what is your call on the stock?
A: Expectations are that we are going to see a sequentially flat quarter. PAT is around Rs 5600 crore where the expectations are, the refining margins are expected at about USD 8.1-8.3/barrel which will be slightly lower than USD 8.7/barrel seen in Q1. But I believe that petrochemical margins would be better as compared to last quarter so that higher petrochemical margins would actually be taking care of drop in refining margins.
Q: Since last quarter, Reliance started reporting consolidated numbers. Could you just explain to us what the consolidated numbers exactly comprise of and would you have any estimates on the same or any parameters you would be watching out for which would then make it qualify as good or a bad number?
A: See consolidated numbers actually include earnings from their shared assets in US. So last quarter close to about Rs 600 crore were added in the E&P earnings at EBIT level from the shale gas assets which had taken the profits upto about Rs 6000 crore but the standalone numbers were in the range of about Rs 5400-5500 crore. So when I say Rs 5600 crore as PAT I am talking about standalone number over here. So that is what the like-to-like comparison is.
Q: What is the outlook for Reliance hereon because we have seen the kind of fall in crude prices and there is clearly some uncertainty on what is happening to the gas pricing?
A: At these levels, I don’t dislike Reliance. Although there are few headwinds in terms of there is still uncertainty on gas pricing and launch of telecom services is something which market feels there is little bit uncertainty on that front as well how the launch is going to pan out and all that, those parameters are not clear. But Reliance has underperformed the market so far so in terms of valuations it is pretty comfortably placed, not looking bad on valuation front but there could be few headwinds going forward.
Q: How would you read the news that came out over the weekend that Reliance is looking to sell its 45 percent stake in its Eagle Ford Basin, that would be worth around USD 4.5 billion?
A: I am aware of the news but it is premature to comment anything on that.
Q: Cairn India has seen quite a bit of fall over last few days and expectedly with the way Brent crude has fallen. Your expectations on Cairn not just in terms of earnings but in terms of stock price behaviour from here on?
A: Cairn is behaving more in line with how the crude oil prices are behaving. In addition, in this quarter, earnings are expected to be weaker because they had to take maintenance shutdown of the field because of which the production was lower in Q2. So that could be impacting the earnings. Otherwise in terms of how the market is perceiving the stock I believe it became apparent in last quarter when basically a loan was given out to the parent entity of USD 1.2 billion. So that remains a headwind for the stock, the concerns around how the cash would be utilised.
Q: There are some expectations that ONGC's numbers will be lower on year-on-year basis, may be a little subdued this time around. Your expectations on ONGC as well as your entire call on the stock?
A: On ONGC, I am very positive, I believe that this quarters number could be better on sequential basis although as you said on year-on-year basis it could look lower. But in ONGC’s numbers there are several parameters like their survey and rival expenses are out of black box (NOT SURE) at the beginning of the quarter which is very hard to put a finger on. But the parameters that we can take a call on are crude oil realisations on net level. So my sense is given that under recovery would be 40 percent lower in this quarter as compared to Q1. So in Q1 we had about Rs 280 billion of under recovery. In this quarter we will be seeing somewhere close to about Rs 21000 crore which is a significant drop and I believe that as Brent has also averaged lower so we cannot continue with the formula of USD 56/barrel because that is really lower than net realisation for ONGC. So given that ONGC’s OFS is also in the picture, government would be willing to give better realisation to ONGC by lowering its subsidy burden. So we could see better net realisation for ONGC and at present level of about Rs 400 I am very comfortable with ONGCs valuations. I see this stock can give you decent upside provided that the crude oil realisations actually improve and your subsidy burden comes down.
Disclosure: Network 18, which publishes moneycontrol.com, is now part of the Reliance Group.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
