RIL may see good growth in Q1 revenue, GRM but margin may hit profitability QoQ

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Reliance Industries, India's largest company by market capitalisation, will declare its June quarter earnings on July 19. The refining & petrochemical volumes, and Jio & retail businesses are expected to be strong and will drive revenue growth on a sequential basis for the company.

However, there could be some pressure on consolidated margin from Jio & petchem segments, which may impact profitability a bit in Q1 but standalone operating income is likely to see sequential increase on higher refining margin, crude throughput and petchem volumes, brokerages feel.

Gross refining margin is expected to be higher at $8.5 a barrel in Q1FY20 against $8.2 a barrel in Q4FY19, which implies a premium of $5 per barrel over Singapore GRM, said Motilal Oswal. It expects refining throughput to grow 9 percent QoQ and petchem volume to rise 11 percent QoQ but petrochemical segment is expected to suffer due to reduced product margins.

"With core business bearing the periodic suffering, positive developments in the telecom and retail segments should drive growth further for the company," the brokerage said.

Singapore GRM for the quarter stood at $3.5 par barrel, down around 42 percent YoY and up around 8 percent QoQ, due to an improvement in gasoline cracks.

"We expect RIL to report a marginal QoQ increase in standalone EBITDA led by modestly higher refining margins at $8.5 a barrel and increase in crude throughput and petchem volumes, which will be partly offset by moderation in overall petchem margins," Kotak said.

The brokerage expects consolidated EBITDA to decline QoQ, as higher standalone and retail EBITDA will be offset by lower Jio EBITDA due to accounting of capacity cost pertaining to Jio's fiber/tower InvITs in lieu of interest and depreciation cost earlier.

Reliance management is confident of 7 percent volume growth in both polymer and polyester business, which will benefit Reliance in Indian markets, hence petrochemicals business is expected to remain buoyant in Q1 FY20, Narnolia said.

The brokerage also added that Jio has successfully integrated Hathway and Den network and is now rolling out JioGiga Fiber in 1,100 cities in India targeting 5 crore JioGiga Homes in the first phase.

Key issues to watch out for would be GRM, petrochemical margin, telecom subscribers, future capex, and interest cost & depreciation.

Reliance Retail has added 510 stores during Q4FY19 and 2,829 stores during the FY19. "Further the company is adding 120 new outlets every quarter which gives us strong revenue growth visibility for next couple of years. Retail being the high margin business is expected to contribute significantly in operating profits of the company," Narnolia said.

Jio has added 307 million subscribers to its network by the end of March 2019. Company’s aggressive efforts to increase subscriber base restricts ARPU to Rs 126 in March quarter.

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Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.