Braveheart Series: Reliance Industries - Brace for a Weak Quarter; Company Update :: Edelweiss

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We forecast Reliance Industries (RIL) to report a weak Q3FY15. In fact, we anticipate it to post one of the steepest earnings fall, -13% QoQ and -9% YoY to INR50bn (standalone). Key reasons: (1) assuming 25-day inventory, a ~26% QoQ fall in average crude prices will normally impact PAT by INR60bn. But, we expect inventory losses to be limited to INR5-8bn as RIL is good at either selling products forward or using financial hedges; (2) RIL will not materially benefit from the USD1.4/bbl rise in Singapore GRMs as fuel oil crack spreads have surged by USD3.8/bbl QoQ, a product that the company does not make. In contrast, crack spread of major product naphtha has fallen; and (3) while petrochem margins have mildly improved, RIL had a shutdown at its mammoth 1mtpa cracker at Hazira.

Inventory impact to offset GRM gains

The impact of lower inventories is smoothened for RIL as it uses weighted average valuation. However, sharp fall in crude prices is likely to take some toll though. RIL will not materially benefit from USD1.4/bbl rise in Singapore GRMs as crack spread of major product naphtha has fallen and the Light-Heavy spread has declined.

Petrochemical start ups offset by maintenance shutdown

Petrochemical EBIDTA is likely to be 8% lower QoQ as polyester intermediates margin declined 7% and its Hazira cracker took a 1-month shutdown. The company’s petchem start ups will be significantly larger going forward though-150ktpa SBR, 325kpta PET and 1.1mtpa PTA capacities are scheduled to start during Q4FY15.

US shale fall likely to subdue consolidated profit as well

RIL’s US shale business EBITDA (USD denominated) is likely to dip ~30% due to weak US gas prices. Retail business is likely to report flat earnings QoQ, but ~75% jump YoY.

LINK
https://www.edelweiss.in/research/Braveheart-Series-Reliance-Industries--Brace-for-a-Weak-Quarter;-Company-Update/27971.html