Reliance Industries is all set to announce its second quarter ended September 30, 2019 results post market hours today.
The oil and gas business, which contributes 50 to 60 percent to FY21 earnings, is expected to be a mixed bag. Refining segment has been under pressure in last few quarters, but the trend is expected to reverse. This is because not only the crude oil prices have fallen 10 percent in the given quarter, the benchmark Singapore GRMs have improved 86 percent sequentially.
The improvement was largely led by improvement in gasoline and FO cracks. Gasoline crack stood at $7.9 per barrel in 2QFY20 (versus $9.4 per barrel in 2QFY19 and $5.7 per barrel in 1QFY20). FO cracks propelled to $1.2 per barrel (versus -$2.2 per barrel in 2QFY19 and $2.0 per barrel in 1QFY20), due to higher availability of light oil in the US and decreased FO exports from the US, China, Russia and Saudi Arabia.
This is why GRMs for RIL are expected to improve to $9.5 per barrel -- highest in last 4 quarters.
Nomura expects Refining EBIT to improve to Rs 5470 crore as against Rs 4508 crore quarter on quarter and Rs 5315 crore year on year.
However, the fly in the ointment will be the petchem business which continues to be on a decline. Further moderation in petchem margins is expected due to decline in prices and margins. Petchem margins remained under pressure despite lower naphtha prices. While primary spreads of ethylene/butadiene declined 49 percent/29 percent year on year, Propylene spreads were flat year on year in 2QFY20. EBIT is expected to come at Rs 7240 crore which will be the lowest in last six quarters.
An update on deal with Saudi Aramco in the refining and petchem business announced earlier in August together with the outlook on the oil to chemicals business would be keenly watched.
Refining and petchem contribute sizeable chunk to the overall SOTP valuation of the company. Morgan Stanley values the company at Rs 1469 per share and this is what the breakup looks like:
RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.
First Published: Oct 18, 2019 8:01 AM IST
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