Q2 earnings preview: RIL likely to report 4.4% QoQ drop in standalone net profit

ET Intelligence Group: Reliance Industries ( RIL) is expected to report a 4.4% sequential drop in standalone net profit at Rs 7,215 crore for the September 2016 quarter after posting growth for six consecutive quarters. While lower refining margin will impact the bottomline, higher refinery throughput and better petrochemical margin will offer some support.

India's largest company by profit and the operator of the world's biggest refinery at a single location will declare its second quarter result on October 20. Its commentary on the timeline of new downstream projects and the ramp up of telecom venture Jio's subscriber addition will be crucial.

The gross refining margin (GRM) is expected to drop to $10 per barrel for the quarter from $11.5 per barrel in the previous quarter. This will affect the company's performance since the refining division contributes two-thirds to sales and operating profit before depreciation. The benchmark Singapore GRM -a gauge of Asian refineries -rose 2.8% sequentially to $5.2 per barrel in the September quarter, largely due to higher realisation from fuel oil. Since RIL's refinery does not produce fuel oil, it would not benefit.

However, the lower GRM is likely to be offset by the higher throughput of the refiner , which is expected to increase to 18.1 million tonne (MT) in the September quarter compared with 16.8 MT in the previous quarter. In addition, improvement in realisation and higher volume are likely to support the performance of the petrochemical segment, where the volume is likely to increase 13% sequentially to 3,600 thousand tonnes, according to CLSA.

The company has invested close to $18.5 billion on the new downstream projects such as pet coke gasification, ethane import and refinery off-gas cracker. RIL had earlier indicated that these projects would be commissioned at the end of the current fiscal and will achieve utilisation by the next fiscal.Any updates on the timeline will be crucial since a sizeable incremental earnings growth hinges on these projects.