Lockdown effect: Muted March quarter earnings expected for RIL

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April 11, 2020 1:10 AM

On the back of this weakness, RIL is estimated to report a sequential decline of about 8% in its net profit to Rs 10,700 crore for the three months of January-March, according to analysts at Bank of America Global Research.

Consequently, RIL’s consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) during Q4FY20 is estimated to remain flat sequentially, but may register a rise of 8% on a y-o-y basis to Rs 22,550 crore. Consequently, RIL’s consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) during Q4FY20 is estimated to remain flat sequentially, but may register a rise of 8% on a y-o-y basis to Rs 22,550 crore.

The March quarter earnings of Reliance Industries (RIL) are expected to be muted due to the lockdown over Covid-19. The muted performance will be on the back of weakness witnessed mainly in the refining and retail segments of the company, as business in the second half of March was almost a washout. Reliance Jio, however, may lend some support with its subscriber additions and average revenue per user (ARPU) improvement.

While the business held up well in the months of January and February, weak demand followed by lockdown in the entire country is expected to impact the performance in the second half of March, especially for the refining, petrochemicals and retail businesses.

On the back of this weakness, RIL is estimated to report a sequential decline of about 8% in its net profit to Rs 10,700 crore for the three months of January-March, according to analysts at Bank of America Global Research. Emkay Global has estimated a much steeper decline of 12% in net profit on a quarter-on-quarter basis. However, compared to the fourth quarter last year, profit after tax is estimated to witness a moderate rise in the range of 3-4%, according to analysts.

Revenues during the quarter will see a sequential decline of 3% on weak sales across all verticals, impacted by lower demand and Covid-19-related disruptions. On a y-o-y basis, the revenues may surge 7.4% to Rs 1.52 lakh crore, according to BofA estimates.

Operating income from the refining segment is expected to bear the impact of sharp decline in oil prices and some hit from inventory and weak demand, and may, therefore, decline by a steep 20% sequentially. Gross refining margin (GRM) is expected to witness a decline on q-o-q basis to $7.5/bbl versus $9.2/bbl in Q3FY20. GRMs are expected to be below Q4FY19 levels too, which came in at $8.2/bbl. Petchem’s operating income could largely remain flat due to a low base effect in the October-December period.

Consequently, RIL’s consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) during Q4FY20 is estimated to remain flat sequentially, but may register a rise of 8% on a y-o-y basis to Rs 22,550 crore. Another estimate pegs a decline of 5% in the company’s Ebitda on a q-o-q basis, and a moderate 2% increase y-o-y.

Consumer businesses — retail and telecom — which form over 37% of the company’s consolidated Ebitda, are expected to have a mixed performance. While retail is hit due to lockdowns in the second half of March, RIL’s telecom business under Reliance Jio is expected to perform well with a full quarter impact of pass-through of tariff hikes. Operating income in the retail business for the fourth quarter is estimated to remain flat q-o-q due to disruptions in business caused by Covid-19. Reliance Jio, meanwhile is expected to see an increase of 6-7% in operating income q-o-q to `5,912 crore, helped by pass-through of tariff hike.

Reliance Jio is estimated to report revenue growth of 5% on a q-o-q basis and more than 32% on a y-o-y basis in Q4FY20 to Rs 14,688 crore, aided by subscriber additions and ARPU improvement. ARPU will be in the range of Rs 130-134 carrying tariff hike impact, according to analyst estimates. Jio’s ARPU stood at Rs 128 in October-December 2019, and at Rs 126 in Q4FY19.

Jio registered a strong subscriber addition in January and February, even though March was impacted by lockdowns. The company may close the fourth quarter with 384 million subscribers, a 4% q-o-q rise from 370 million subscribers as on December 31, 2019 and over 306 million subscribers in Q4FY19, according to analysts at Axis Capital.

In Q3FY20, RIL’s net profit surged 13.5% on a y-o-y basis to Rs 11,640 crore. Revenues, however fell by 1.4% to Rs 1.68 lakh crore. The company’s operating income rose 9.6% to Rs 26,088 crore during this period.

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