Oil and Gas Segment Performance to Steady Despite Market Challenges
Decline in Oil to Chemicals Margins Expected to Impact Overall Earnings
Reliance Industries Ltd. (RIL), a major player in the Nifty 50 index, is gearing up to announce its earnings for the April to June quarter on Friday, July 19. As the market anticipates the results, the stock has seen a slight dip, trading one percent lower today ahead of the earnings release. Analysts have mixed expectations for RIL’s various segments, with particular attention on its upstream oil and gas and oil to chemicals (O2C) businesses.
Reliance Industries Ltd. : Oil and Gas Segment Performance to Steady Despite Market Challenges
According to BOB Capital Markets, RIL’s upstream oil and gas segment is anticipated to maintain a steady performance, as margins are now beginning to stabilize. This segment’s strong showing is expected to counterbalance the anticipated decline in margins within the O2C segment. Despite these optimistic views, Kotak estimates suggest a different scenario. They project a decrease in EBIT for the oil and gas segment due to slightly lower realizations and production levels.
In terms of financials, EBITDA for the oil and gas segment is projected to increase by 35% year-on-year, reaching ₹5,431 crore. However, on a quarter-on-quarter basis, this represents a 3% decline. Volume-wise, there is an expected 43% surge year-on-year, though a 2% drop from the previous quarter, with volumes anticipated to be 33.4 mmscmd. The gas price has seen a marginal decline of 3% year-on-year and a slight 0.2% decrease quarter-on-quarter, currently standing at $10.1 per mmbtu.
Decline in Oil to Chemicals Margins Expected to Impact Overall Earnings
The O2C segment, which has been a significant revenue driver for Reliance, is facing challenges. The company expects a decline in EBITDA for this segment compared to the previous quarter. This downturn is attributed to falling margins in both refining and petrochemicals. In the June quarter, the Singapore Gross Refining Margin (GRM) was $8.2 per barrel, an improvement from $7.3 per barrel in the March quarter. Despite this, Kotak predicts that the EBITDA for Reliance’s O2C business will drop by 20% quarter-on-quarter and 12% year-on-year, amounting to ₹13,463 crore.
Further, the refining GRM is expected to fall by 18% year-on-year and 26% quarter-on-quarter to $8.2 per barrel. Emkay Global’s analysis aligns with these projections, forecasting that Reliance’s consolidated EBITDA will likely decrease by 8% quarter-on-quarter to ₹38,900 crore, driven by a 21% drop in the O2C segment to ₹13,300 crore due to lower GRMs.
As RIL prepares to disclose its earnings, market participants are keenly watching for how these projections will align with actual performance. The overall sentiment reflects a cautious optimism, with the oil and gas segment potentially providing a buffer against the expected downturn in the O2C segment. The earnings announcement will be a crucial indicator of how well Reliance can navigate these challenges and leverage its diverse portfolio to maintain financial stability.
In conclusion, Reliance Industries Ltd. faces a mixed outlook for its April to June earnings. While the oil and gas segment shows promise with stabilizing margins and increased volumes, the O2C segment is expected to face significant headwinds due to declining refining and petrochemical margins. The upcoming earnings report will be pivotal in determining the company’s resilience and strategic direction in the face of these sectoral challenges.
Also Read : The Enteprise world
