Margins-hit RIL likely to Put Up a Modest Q1 Show

June quarter net profit seen between . 4,300 crore and . 4,400 crore, down 22-24% year-on year

    Reliance Industries, which has been underperforming the markets for long, is expected to report a subdued performance on Friday when it unveils its June '12 quarter numbers. The company's net profit is expected to fall annually on dwindling margins in all its business segments — refining, petrochemicals and oil & gas production. The overall environment has not been conducive for RIL's businesses in the quarter to June '12, thanks to the ongoing global economic uncertainties. RIL's refining business, which is the largest revenue and profit generating segment, is set to face eroding margins. 
"The Singapore complex margins have averaged $6.7 per barrel in the June '12 quarter, while we estimate RIL's GRMs to be around $7 per barrel. This should mean a sequential decline from $7.6 in March '12 quarter," according to a preview report of Elara Securities. Other brokerage estimates for RIL's GRMs are in the $6.7-$7 per barrel range. 
The oil & gas business will continue its slide with natural gas production estimated to average 32-32.5 mmmscmd in the June '12 quarter against 35 mmscmd in March '12 quarter. Petrochemical margins are expected to improve from March '12 quarter, which could provide support for the company's earnings in the quarter. "Petchem EBIT margins are likely to improve q-o-q on account of better margins in the polymer segment; polyester, however, continues to be muted. We expect the petrochem segment to contribute around . 2,400 crore at the EBIT level," said Religare's result preview report. RIL's petchem EBIT was . . 2,215 crore in the June '11 quarter. 
Overall, RIL's June quarter net profit is likely to be between . 4,300 crore and . 4,400 crore, which will be 22-24% below its year-ago profits. 
This will be a third consecutive quarter of y-o-y fall in RIL's profits. Whether and when RIL's difficult phase is set to get over is an ongoing debate, especially as the company has underperformed the BSE Sensex for the past four consecutive years. In its latest report Nomura has raised the issue as to whether the era of under-performance is behind the company. It points out that RIL's earnings are US-dollar linked. 
"Every 5% rupee depreciation raises RIL's earnings by 5.5%-6% on our estimates. The rupee has depreciated 26% over the last 12 months," it says before terming RIL's valuations 'undemanding'. However, the company's outlook may worsen before it gets better, according to a Bank of America-Merrill Lynch report.