Reliance Industries likely to put strong Q4 show on refining margins

Ahead of the company 's fourth quarter results due Friday, analysts have projected a strong a show by Reliance Industries, thanks to a step up in the gross refining margins, while also expecting some guidance on new oil discoveries and the telecom venture.

"We expect Reliance Industries to report strong results for the fourth quarter of the financial year on the back of its strength in refining margins, expected at $9.65 per barrel," financial services major BNP Paribas said, adding this was likely to reflect in the earnings.

"The petrochemical business should be flat quarter-on-quarter on account of a mixed performance across product chains," it said, listing losses in its telecom venture and a possible lack of traction post-launch of the services as the risk factors.

Gross refining margins, or GRMs, refer to the difference between the total value of petroleum products that come out of an oil refinery-such as gasoline, diesel, kerosene and aviation fuel-and the price paid for raw materials, mainly crude oil.

The Reliance scrip closed on Thursday at Rs 927.45, up Rs 3.70 or 0.40 per cent. During the past five trading sessions, it has moved up to the present level from Rs 862. It had touched a 52-week low of Rs 796 on March 30 this year.

Maintaining a buy rating again on Reliance Industries' stock with over 50 per cent upside in the price over the next 12 months, equity brokers CLSA said the company's fourth quarter standalone net profit was likely to jump sharply.

"Driven by a large $2.7 per barrel, quarter-on-quarter jump in refining margin, Reliance's fourth quarter standalone net profit is likely to come in at a record quarterly high of Rs.59.2 billon," CLSA said.

"A recent press release by Niko (a hydrocarbons prospecting partner of Reliance) reveals an encouraging 1.4 trillion cubic feet resource estimate in the MJ discovery in KG-D6 which could add $0.7 billion to Reliance's fair value," it added.

Morgan Stanley had a similar take on the finding.

"Assuming a 10-year production life and recovery factor of 70 per cent for gas and 50 per cent for oil, we think this discovery can produce an incremental 6 mscmd (million standard cubic feet per day) of gas and 6.7 kbpd (thousand barrels per day of oil)" it said.

"This could add Rs 1.50-Rs 2.60 to EPS (earnings per share), or which may be valued at Rs 18-Rs 32 to the Reliance Industries' share price."

Kotak Securities felt Reliance could also gain from unlocking shareholder value.

"Listing its retail business separately will help unlock fair valuation that is otherwise hidden within... The retail business has grown significantly in terms of revenues and the company has become the largest brick-and-mortar retailer in India over the past few years."

The investment banking firm expected the loss from another sunrise venture of Reliance Industries-the broadband and related telecom business-to have posed losses during the financial year in review, but was unable to fix numbers.

"The potential loss from its telecom business is difficult to quantify at this stage given sketchy disclosures (on rollout plans) despite a rather significant allocation of capital," it said.

"If Reliance Industries were to improve disclosures, it would help allay investors' concerns about the telecom business."