Robust oil earnings likely to drive RIL's Q1 results, say analysts

Retail to benefit from low base; tariff hikes to power telecom growth

Reliance Industries (RIL) is likely to report a strong set of numbers in the quarter ended April-June (first quarter, or Q1) of 2022-23 (FY23), driven by robust oil earnings, say analysts tracking the company.

The company’s retail operations will benefit from a favourable base, while subscriber additions and tariff hikes will drive telecommunications (telecom) growth during the quarter. The company will report its Q1 earnings on Friday (July 22).

According to a Bloomberg poll of analysts, the company is expected to post a consolidated net profit of Rs 21,615 crore on net sales of Rs 2.25 trillion in Q1FY23. Earnings before interest, tax, depreciation, and amortisation (Ebitda) are likely to come in at Rs 38,474 crore, reveals the Bloomberg poll.

Compared to a year ago, the top line will grow 56 per cent, while Ebitda and profit after tax (net profit) will grow nearly 40 per cent and 76 per cent, respectively, based on the Bloomberg consensus estimates for Q1.

Sequentially, the top line will grow nearly 9 per cent, while Ebitda and net profit will grow nearly 23 per cent and 33.4 per cent each.

“The April-June period of FY23 will be significantly influenced by higher gross refining margins (GRMs) the company saw during the quarter due to spike in crude oil prices, as well as the refining boom due to the Russia-Ukraine war,” says Deven Choksey, managing director at Mumbai-based brokerage KRChoksey. On average, GRMs were in the region of $22-25 per barrel in Q1 for RIL, says Choksey — more than double the average of around $10 a barrel the firm had done in the earlier rounds.

GRM is what a company makes from turning every barrel of crude into fuel. Q1FY23 saw the full impact of tight oil supplies in the marketplace due to the Russia-Ukraine stand-off, refinery shutdowns worldwide, and halt in exports of refined products by China.

Indian refiners like RIL benefited from these developments, says brokerage Morgan Stanley, since they were in a position to supply refined products to the world, using discounted Russian crude oil as source.

While the government levied export duties on petrol, diesel, and aviation turbine fuel on July 1 to curb the upside for refiners, the impact on RIL, say some brokerages, was limited to the extent of $6-8 per barrel.

Refining is part of the oil-to-chemicals (O2C) vertical of RIL, contributing close to 60 per cent of revenue and nearly 50 per cent of Ebitda. Besides refining, petrochemical and fuel retail are also part of the O2C business.

Retail and telecom, on the other hand, account for 34 per cent of revenue and nearly 45 per cent of Ebitda.

In Q1, telecom, led by Reliance Jio, is likely to see net subscriber additions of around 6 million after three quarters of consolidation, brokerage ICICI Direct said in its quarterly report on RIL. Retail revenue, meanwhile, will double from last year, led by strong recovery in fashion and grocery, added the brokerage.

Year-to-date, the RIL stock has grown 1.41 per cent, although in the April-June period, it corrected 2.27 per cent, reveals the BSE data.