Reliance Industries,India’s biggest company by market capitalisation, will most likely report a second consecutive quarter of lower profits when it announces March 2012 quarter numbers on Friday.
This will be the first time since 2009 that the petroleum major is suffering two consecutive quarters of year-on-year profit fall. It will perhaps be the first time in the company’s history that its profits will sequentially fall for a second consecutive quarter. Things are not expected to improve in a hurry.
Various brokerage houses estimate RIL to post a net profit somewhere between 4,012 crore and 4,380 crore, which will be down between 18.5% and 25.4% from the year-ago period and down about 1.4% to 9.7% from the December 2011 quarter.
Reliance has been facing margin pressure in all its main businesses, with volumes growth suffering in the gas business. In its refining business, the gross refining margins (GRMs) – the difference between the cost of a barrel of oil and value of all the products made out of it – have been under pressure for the past few quarters. After reporting it at $6.8 per barrel in December 2011 quarter, there is apprehension that the company could post even lower margins for the March quarter.
“We expect RIL’s fourth quarter refining margin (GRM) at $6.5 per barrel. It would also be down 30% year-on-year and 4% quarter-on-quarter. The 3-week shutdown of one of the two CDUs at its SEZ refinery would mean lower volume and affect its GRM by $0.2 per barrel,” noted a research report from Bank of America-Merrill Lynch.
Not all are, of course, so bearish. For example, CLSA pegs RIL’s GRMs at $7.1 per barrel in March 2012 quarter up around $0.3 over the December quarter.
The petrochemicals business will also see falling profitability while the dwindling natural gas production from its KG-D6 block and Panna-Mukta-Tapti blocks will also mean lower profitability.
This has resulted in most brokerage houses either downgrading the company or reducing their earnings forecast. A report by Kotak Institutional Equities concluded, “We have further cut our SOTP-based target price to 800 from 830 previously.”
Similarly, BoA Merrill Lynch has cut its FY12 EPS forecast by 3% to 61.2 from earlier 63.4, besides cutting its price target by 2% to 831 per share. CLSA has cut its target price on RIL by 25 to 860 per share.
Going by the predictions for the March 2012 quarter results, the RIL scrip is still not out of the woods after having under-performed the broader market indices over last few years. The company could, nevertheless, see some positive triggers emerging by the end of the current year, particularly in the form of upward revision in natural gas prices.
Some experts have also started viewing the company as a ‘value pick’, arguing a limited downside from the current levels. However, till such time any positive triggers emerge, RIL shares will continue to test the patience of its shareholders.