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Sharp improvement in refining margin by $2.7 per barrel to $10 per barrel is expected to be the prime driving force
Reliance Industries is expected to post a record fourth quarter net profit as it benefits from refining margins, which will be partially offset by lower petrochemical margins. RIL will announce its January-March 2015 quarter result on Friday.
A Bloomberg poll of 16 analysts has forecast net profit of the company at Rs 5,931.5 crore (Rs 59.32 billion), against Rs 5,511 crore (Rs 55.11 billion) during the fourth quarter of last fiscal year, a growth of 7.6 per cent year on year (y-o-y) on a stand-alone basis. Net sales is expected to come in at Rs 64,455 crore (Rs 644.55 billion). The analysts however, factor in stand-alone figures while RIL has, since the beginning of financial year 2014-15, begun reporting numbers on a consolidated basis.
"Driven by sharp improvement in refining margin by $2.7 per barrel to $10 per barrel, Reliance's fourth quarter stand-alone net profit is set to jump to record quarterly high of Rs 5,920 crore (Rs 59.2 billion). While we expect refining Ebit to rise over 50 per cent quarter on quarter (q-o-q), to Rs 4,860 crore (Rs 48.6 billion)," said Vikas Kumar Jain of CLSA in its report.
Ebit refers to earnings before interest and taxes, depreciation and amortisation and depicts a company's profitability.
Jain added that this would be despite 7 per cent lower refining thruput (16.5 million tonnes) due to a planned maintenance shutdown for part of the capacity from mid-Mar 2015.
Analysts expect RIL's Gross Refining Margin or GRM to be between $9.5-10 per barrel against $7.3 per barrel q-o-q and $9.3 per barrel y-o-y. GRM is earnings from turning every barrel of crude oil into fuel. Benchmark Singapore GRMs improved to $8.5 per barrel during the quarter and $5.7 per barrel for FY15.
GRMs would also be helped by improved crack spreads in key products and absence of significant inventory losses. "Crack spreads were buoyed by a 30 per cent reduction in crude prices and planned/unplanned refinery outages," said Nitin Tiwari of Religare Institutional Research.
During the quarter, crude oil prices remained muted due to supply glut. Brent crude averaged out lower in the fourth quarter of this fiscal at $54 per barrel, against $85.7 per barrel for FY15. The Indian crude basket averaged at $52.9 per barrel.
Refining and petrochemicals are the core businesses of RIL. In 2014, refining contributed 77.7 per cent of RIL's revenue while Petrochemical contributed 20.7 per cent and oil and gas contributed 1.3 per cent. RIL's Petchem segment is expected to report flat Ebit at Rs 2,100 crore (Rs 21 billion) during the quarter, implying a margin of 11.5 per cent even as petchem revenue would decline on account of the correction in petrochemical prices.
On the exploration and production front, analysts have factored in lower gas production from RIL's D6 block in the Krishna Godavari basin at 11.5 million metric standard cubic metres (mmscmd) per day against 11.8 mmscmd in the third quarter of this fiscal. Consolidated profit for the fourth quarter will be muted as US shale profit will get impacted from weaker gas and liquid prices.
