Brokerages expect sub-7K net profit, 6.0 GRM in RIL Q1

New Delhi, July 29 An analysis of estimates by 12 brokerages show that expectations for Reliance Industries Limiteds (RIL) net profit for the quarter ended June 2020 ranges from Rs 4,600 crore to Rs 8,083 crore.

The average estimate of the 12 brokerage houses stands at Rs 6,994 crore for the June 2020 quarter. This is 30.8 per cent lower than June 2019 quarter's net profit of Rs 10,104 crore.

Market watchers said the April-June 2020 quarter has been extremely tough for the petroleum and petrochemicals sector, as India as well as many other large countries undertook months-long lockdowns that stalled local economic activity and posed challenges to production, transportation and distribution processes.

Its impact was most clearly visible in the crude oil market. The prices of crude oil and its derivatives transport fuels or petrochemicals crashed as demand almost disappeared overnight. So much so, that crude oil prices dipped below $0 in end April, although briefly. Economies came to a standstill in this quarter for almost two months.

Various research reports have highlighted the situation during the April-June 2020 quarter and the likely impact on the Indian companies in the oil and gas sector.

According to an Edelweiss report, it expects sectoral EBITDA to fall off 41.1 per cent year-on-year given a 51 per cent year-on-year collapse in oil prices and a total lockdown in April 2020. For the oil marketing companies (OMCs), massive refining loss is likely due to negative GRMs and weak marketing sales volume.

RIL's consolidated EBITDA would drop 22 per cent year-on-year with weakness in refining (down 24 per cent year-on-year), petchem (down 49.9 per cent) and retail (down 30.1 per cent) likely to be offset by Reliance Jio (up 41 per cent). GRM is estimated to fall 19.8 per cent to $6.5/bbl due to lower light and middle-distillate cracks.

According to a JM Financial report, the Singapore Dubai GRM was at a record low of negative $1.0/bbl in Q1FY21, given the unprecedented 20 per cent contraction in global oil demand due to the global lockdown.

The 25-30 per cent decline in refining and marketing volumes is likely to hit OMC earnings. Despite slight improvement, the GRM continues to be below cash cost (of $ 2-2.5/bbl) and the outlook is challenging at least for the next 2-3 quarters.

According to a Morgan Stanley report, the aggregation of Morgan Stanley analysts' estimates for Sensex and Nifty companies indicates revenue growth of -22 per cent and -29 per cent year-on-year, respectively, in 1QF21.

Net profit growth for Sensex and Nifty companies is expected at -33% and -41%, respectively, in Q1F21.

For Q1FY21, ONGC, Tata Steel and Reliance Industries are expected to be the most negative contributors to Sensex earrings growth while SBI, Bharti and HDFC Bank are expected to be the most positive contributors.

According to a CLSA report, hindered by the April-May lockdown, Q1FY21 is expected to be Indian businesses' worst quarter on record. "We expect the CLSA universe to register a 47.6 per cent year-on-year fall in pre-exceptional profit before tax (PBT). Ex-PSU oil and gas and financials, pre-exceptional PBT is likely to fall a sharper 55.2 per cent YoY. A weak 1Q is a foregone conclusion, outlook commentary may be key for stocks," CLSA said.

According to HDFC Securities, revenue for its coverage universe is likely to decline by 50/45 per cent year-on-year/quarter-on-quarter owing to the lockdown and sharp correction in crude oil and gas prices. This has resulted in a decline in sales for OMCs, RIL, GAIL and CGD entities and lower realisation for upstream companies.

"We expect EBITDA for oil and gas companies under our coverage to decline by 30 per cent YoY in 1Q owing to lower refining margins," the report said.

"We expect RIL's EBITDA to decrease by 24 per cent QoQ to Rs 86.18 billion owing to 33 per cent fall in GRM to $ 6.0/bbl versus $ 8.9 in 4Q and decline in petchem margins," it added.

Antique Broking said in a note that as the Covid-19 pandemic ravaged the world, sending 180 countries in some or the other form of 'lockdown', the petroleum demand was severely impacted.

"It is estimated (IEA) that crude oil/petroleum consumption over 2QCY20/1QFY21, declined by almost 20-25 per cent, sending crude oil prices in a tailspin. Benchmark Singapore refining margins continued to be weak and averaged at 'negative' $ (0.9)/bbl (4QFY20: $1.24/bbl), primarily dragged down by negative MS cracks ($2/bbl), negative ATF cracks ($2.5/bbl) and fairly weak HSD cracks ($3/bbl). Therefore while we expect RIL to report a QoQ lower GRM of $6/bbl as against $8.9/bbl in the fourth quarter," the report said.

( With inputs from IANS )