Reliance Industries Ltd (RIL) is all set to announce its third-quarter ended December 31, 2019 results on Friday. The oil-to-telecom major draws heavily on petchem and refining as these segments contribute 60 percent to overall consolidated earnings before interest, tax, depreciation and amortisation (EBITDA).

Refining segment is expected to be steady in the third quarter, while the pressure in petchem segment may have continued.

REFINING SEGMENT

The segment is valued at Rs 407 a share and contributes 18 percent to the overall enterprise value at about $37 billion. For the third-quarter results, the gross refining margins (GRMs) will be the main focus area, which are expected to decline marginally to $9.2/bbl compared to $9.4/bbl quarter-on-quarter (QoQ).

This is despite the fact that Singapore GRMs are at 15 years low because of lower fuel oil cracks. Fuel oil cracks have come down to $18.4/bbl (v/s +$1.6/bbl in 3QFY19 and +$1.2/bbl in 2QFY20) . This is because RIL does not have a big contribution coming in from fuel oil in its overall basket of products.

Another point to note is that diesel cracks failed to get the expected traction in the final quarter before IMO implementation and averaged $11.9/bbl (v/s $13.1/bbl in 3QFY19 and $13.9/bbl in 2QFY20).

RIL GRMs continue to be at a premium to the Singapore GRMs. However, the premium has been coming down in the last few quarters and this quarter, and it is expected to widen.

Refining EBIT, however, is expected to be higher by 7.5 percent QoQ to 5290cr because GRMs are lower, thruput is expected to be higher due to higher thruput as all the plants were functioning this quarter.

Refining EBIT

Q2FY20: 5,659 crore

Q1FY20: 4,508 crore

Q4FY19 : 4,176 crore

Q3FY19: 5,055 crore

Q2FY19: 5,322 crore

Q1FY19: 5,315 crore

Q4FY19: 5,607 crore

PETCHEM

Petchem which contributes 19 percent to EV and Rs 436 in terms of SOTP, surprised on the positive side in the last quarter, but this quarter the margin pressure is expected to continue that is because the product prices of key products have declined.

This time around, it’s a decline of 20-30 percent QoQ. Primary spreads of ethylene, propylene, and butadiene declined 46 percent, 20 percent and 16 percent, respectively, YoY in 3QFY20.

And that’s why, there could be a decline of 15 percent QoQ in the EBIT at Rs 6,370 crore. Globally, there is a huge supply glut which is expected to keep the margins under pressure.

PETCHEM EBIT TREND

Q2FY20: 7,602 crore

Q1FY20:7,508 crore

Q4FY19: 7,975 crore

Q3FY19: 8,221 crore

Q2FY19: 8,120 crore

Q1FY19: 7,854 crore

Q4FY18: 6,435 crore

Q3FY18: 5,753 crore

Q2FY18: 4,960 crore

Q1FY18: 4,031 crore

Reliance Jio Q3FY20 earnings preview

A CNBC TV18 poll expects Jio to post strong revenue growth of 10.7 percent in the third quarter of the current financial year. That will be led by subscriber addition and ARPU improvement. ARPU stands for average revenue per user, which is effectively the monthly telecom bill of users.

According to the Telecom Regulatory Authority of India (Trai) data, Jio gained 9 million subscribers in October, compared to 7 million subscribers in September, primarily aided by the launch of Jio Phone Diwali offer.

This trend of strong subscriber addition is expected to continue but partly offset by the potential loss of subscribers to another network since Jio started charging for voice calls in October.

The net subscriber additions could be of 22.8 million vs 23.9 million quarter on quarter, helping the company in reaching 378 million subscribers by December.

ARPUs are expected to increase Rs 124- 125 vs Rs 120 quarter on quarter, aided by the near 25 percent price hikes taken by the industry in December. However, the full impact of price hikes will be visible in the subsequent quarters.

The poll expects EBITDA margin to improve quarter on quarter, benefiting from revenue growth.

The telecom arm is expected to contribute around 25 percent to RIL's overall EBITDA.

Reliance Retail Q3FY20 earnings preview

Reliance Retail, the largest retailer in India, has been a key focus for RIL. Here are the key things to watch out for in the Q3FY20 results

Q3FY20e YoY

Revenue +27% at 45080 Cr vs 35577 Cr

EBIT +49% at 2260 Cr vs 1512 Cr

Margins at 5% vs 4.2%

#NomuraEst

WHAT HAPPENED IN H1FY20

Revenue +35%

EBITDA +59%

GROWTH RATE OF RELIANCE RETAIL

Q3FY19 89%

Q4FY19 52%

Q1FY20 48%

Q2FY20 27%

Q3FY20e 27%

RETAIL MARGINS

Q3FY19 4.2%

Q4FY19 4.7%

Q1FY20 4.7%

Q2FY20 4.9%

Q3FY20e 5%

TRIGGERS FOR RETAIL BIZ

- Soft Launch of eComm biz Jio Mart

- Clearing the decks for Jio Listing

VALUATIONS

Reliance Retail Valued anywhere b/w 3-3.5 Lk Cr

Total Retail Biz Valued at `475-550/sh

First Published:Jan 16, 2020 4:48 PM IST