Q3 results preview: RIL may see rise in sales but 10% decline in profit

Fuel export taxes may offset sequential recovery in O2C segment, say analysts

Mukesh Ambani-led Reliance Industries (RIL) may report a mixed set of numbers for the third quarter of 2022-23, consensus estimates by Bloomberg show. 

Analysts expect RIL’s Q3 earnings to be declared next week; the company is yet to disclose the date to stock exchanges.

According to analysts at UBS, Morgan Stanley, CLSA, and Goldman Sachs, Q3 earnings would be led by RIL’s telecom and retail businesses, while a sequential recovery in the oil-to-chemicals (O2C) division might be partly offset by fuel export taxes and a weak petrochem margin.

The average price of Brent crude oil between October and December 2022 was around $88 per barrel. This was 11 per cent lower than the average Brent crude price in the July-September (2022) period, Bloomberg data shows. A year ago, the average price of Brent crude was $79 per barrel.

Bloomberg consensus estimates indicate that RIL may report double-digit YoY growth (25.7 per cent) in net sales in Q3 at Rs 2.32 trillion. Sequentially, however, net sales growth is likely to be 1.1 per cent only.

Profit after tax (PAT), on the other hand, may decline nearly 10 per cent YoY in Q3 to touch Rs 16,759 crore. Sequentially, net profit growth would be nearly 23 per cent as O2C recovers from the volatility seen in the energy markets in Q2, analysts said.

Earnings before interest, taxes, depreciation, and amortisation (Ebitda), meanwhile, may fall marginally YoY to touch Rs 33,591 crore. Sequentially, the decline in Ebitda could be around 3.3 per cent, Bloomberg consensus estimates show.

RIL derives nearly 60 per cent of its revenue from the O2C business, which includes refining, petrochemicals, and retail fuel. The business contributes 50 per cent to Ebitda. Retail and telecom, on the other hand, account for 34 per cent of revenue and nearly 45 per cent of Ebitda.

“Gross refining margin marginally improved sequentially, led by the elevated middle distillate spreads, averaging $15 to a barrel in the October-December period. Regional petrochemical spreads, however, continue to remain soft, dragging O2C segment earnings,” UBS analysts Amit Rustagi, Navin Killa, and Rwibhu Aon said in their report on RIL dated January 3.

“We think investors are not pricing in retail’s revenue growth potential from rapid store expansion, e-B2B revenue growth, and private labels. Additionally, the consensus seems to underappreciate the upcoming integrated manufacturing ecosystem for the new energy business,” they stated.

In a report released on Tuesday, Goldman Sachs' analysts Arnab Mitra and Randy Lau said they remained positive on RIL. “The petrochem margin has likely bottomed out in the third quarter of FY23. We expect a gradual recovery from the fourth quarter, driven by China’s reopening pulling up oil prices. Also, long-term hyper-growth in retail, driven by an omnichannel strategy, should aid growth," they said.

CLSA analysts Vikash Kumar Jain and Vijayant Gupta see steady progress in Jio and retail in the December quarter and beyond.

“The past 12 months have seen an over 45 per cent jump in the selling area of Reliance Retail and an over 20 per cent rise in its store count to 16,600. The operating leverage of this break-neck pace of expansion and progress in omnichannel and e-commerce endeavours should become more visible in 2023. A healthy subscriber addition by Jio in mobile and broadband should help the telecom business,” they added.