Billionaire Mukesh Ambani-owned Reliance Industries’ (RIL) Q1 earnings, which are to be announced today after market hours, may hinge less on Jio’s steady expansion and more on whether its refining business captured a dramatic upswing in global fuel margins.
Singapore gross refining margins surged to $21.3 a barrel during the quarter from $5.6 a year earlier, according to Jefferies. Diesel, gasoline and aviation-fuel cracks jumped 263%, 152% and 342%, respectively, while blended petrochemical margins expanded 56%.
Those conditions have raised expectations of a strong recovery in RIL’s oil-to-chemicals business. But a planned refinery shutdown, losses on fuel retailing and elevated operating costs could determine how much of the global margin upswing ultimately flows into earnings.
JPMorgan has one of the strongest expectations from refining. It estimates RIL’s O2C EBITDA will rise 24% both sequentially and year-on-year to ₹18,025 crore, helping consolidated EBITDA climb 12% from a year earlier and 9% from the March quarter to ₹48,115 crore.
The brokerage said refining cracks and petrochemical margins remained very strong during the quarter. RIL, however, undertook maintenance at one of its four crude-distillation units, which may have affected volumes. A weaker rupee could partly cushion that impact, while also increasing operating and foreign-exchange costs.
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JPMorgan expects profit attributable to shareholders to rise 13% sequentially and 6% year-on-year to ₹19,136 crore.
More importantly, the brokerage believes investors may focus on whether RIL was able to translate stronger commodity margins into earnings. The company did not fully capture the benefit of stronger refining and petrochemical conditions in the March quarter, according to JPMorgan.
It said company guidance and the “transmission” of margins may be more important than the quarterly print. A strong O2C performance could increase confidence that elevated margins will support earnings over the rest of the year and potentially lead to estimate upgrades.
Jefferies also expects refining to lead the quarter. It forecasts RIL’s consolidated EBITDA will increase 10% year-on-year, driven by 20% growth in O2C EBITDA. The brokerage expects wider petrochemical spreads and stronger margins at the special economic zone refinery to underpin the segment.
Citi expects O2C earnings to improve sequentially on higher refining margins and robust petrochemical spreads. It estimates consolidated EBITDA will increase 11% year-on-year and 8% sequentially to ₹47,473 crore, while profit may rise 6% from a year earlier to ₹19,098 crore.
Not every global brokerage expects RIL to capture the full benefit of the favourable refining environment.
Nomura estimates O2C EBITDA will increase 4% year-on-year and 3% sequentially to ₹15,020 crore. A month-long planned turnaround at RIL’s domestic refinery unit may offset part of the benefit from stronger refining margins and petrochemical prices, it said.
The business may also have been affected by fuel-retailing losses and increased production of refinery LPG. Nomura consequently forecasts consolidated EBITDA growth of 5% year-on-year and 2% sequentially to ₹44,860 crore.
The range of expectations makes O2C the key monitorable. Strong global refining indicators have created the conditions for an earnings recovery, but the magnitude will depend on refinery utilisation, feedstock costs, marketing losses and RIL’s ability to monetise elevated product cracks.
Jio expected to remain steady
Jio, by comparison, is expected to provide a relatively stable growth engine.
Nomura forecasts Jio Platforms’ EBITDA will rise 14% year-on-year and 4% sequentially to ₹20,860 crore. It expects the subscriber base to increase by eight million during the quarter to 532.4 million, while average revenue per user may improve to ₹217 a month from ₹214 in the preceding quarter.
“Soft O2C and Retail, while Jio likely remained steady,” Nomura said in its preview.
Subscriber additions and a modest improvement in monetisation are expected to support Jio’s performance. But without a major tariff-led boost during the quarter, the telecom business may deliver growth broadly in line with expectations rather than produce the biggest earnings surprise.
Nomura said a potential tariff increase and the valuation assigned to Jio Platforms in an upcoming initial public offering could emerge as important triggers. For the June quarter, however, operating expectations are centred on continued subscriber growth and a limited increase in ARPU.
Jio’s numbers would be tracked closely as it has filed its Draft Red Herring Prospectus (DRHP) with Sebi and is expected to raise anywhere between Rs 35,000-40,000 crore in the complete offer for sale (OFS) issue. The telecom entity will use the IPO proceeds to prepay debt worth Rs 27,500 crore. The mega IPO is much awaited as it could be the largest ever in Dalal Street's history, bigger than Hyundai’s Rs 27,870 crore offering.
Retail growth may remain margin-light
Reliance Retail is expected to grow, though profitability may continue to lag revenue.
Jefferies forecasts retail revenue growth of 11% and EBITDA growth of 8% year-on-year. Nomura expects revenue to rise 12%, but sees EBITDA increasing only 3% as margin pressure persists. Sequentially, it expects retail EBITDA to decline 5% to ₹6,590 crore.
Citi also expects retail EBITDA growth to remain softer than revenue growth because of investments in quick commerce.
The upstream oil and gas business is likely to be the weakest part of the portfolio. JPMorgan expects its EBITDA to fall 13% year-on-year, while Jefferies and Nomura forecast a 21% decline. Lower KG-D6 production and softer gas realisations are expected to weigh on the segment.
That leaves refining as the biggest potential earnings catalyst. Jio should offer growth visibility, retail may deliver revenue expansion with softer margins, and upstream is expected to remain under pressure.
The decisive question is whether RIL’s O2C business converted the quarter’s exceptional global refining conditions into company-level earnings. The answer could matter more for the stock than another predictable quarter of subscriber and ARPU growth at Jio.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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