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Refining, petrochem boost to help Reliance Industries maintain profitability

Most analysts expect RIL to report GRMs in the range of $9.85-$10.1 for the quarter, higher than the $9.6 it posted in the December 2012 quarter.

The earnings report card of Reliance IndustriesBSE 0.70 % is expected to be good as the company is expected to maintain its profitability from the Oct-Dec 2012 quarter when it announces its numbers for the fourth quarter of FY13 on Tuesday on the back of a better show by both its refining and petrochemical divisions despite a drop in output from the Krishna Godavari basin.

RILBSE 0.70 % had posted a net profit of Rs 5,502 crore — its third highest quarterly net profit figure — in the quarter to December 2012. In the subsequent three months, gross refining margins — or the differential between sale proceeds of petroleum products and the cost of crude oil needed to produce them — has improved marginally.

"While Q4FY13 started strongly with GRMs above $10, the end of the quarter has seen GRMs of $5 per barrel; averaging $8.5 per barrel overall for Q4FY13. RIL should benefit from the QoQ stronger GRMs," a preview report by 

Elara Securities



Most analysts expect the company to report GRMs in the range of $9.85-$10.1 for the quarter, higher than the $9.6 it posted in the December 2012 quarter. The company may, however, post a fall in volumes, as its refinery was partially shut down for maintenance.

Similarly, the petrochemicals division is set to post a superior performance with most petrochemicals and polymers commanding better prices, while the naphtha prices stagnated.

"Asian chemical spreads have surged on account of maintenance shutdown at some units. Polymer cracks have expanded, too - polypropylene cracks lead with a 29% QoQ expansion, followed by polyethylene cracks at a 15% QoQ increase," says an earnings preview note from 
ICICI Securities. RIL's petrochem business could surprise on the higher side, as demand has improved QoQ, it says.

Street estimates for petrochemical margins fall in the range of 9-9.5% for the March 2013 quarter up from 8.8% of the December 2012 quarter.

The company's oil and gas division is expected to post a faster drop in revenues and profits led by a drop in the KG basin natural gas output. During the last quarter, RIL's KG basin natural gas output had averaged 24.3 mmscmd, which is expected to drop to somewhere between 19 and 20.6 mmscmd in March 2013 quarter

As a result, most analysts believe the company will maintain its profit level from the preceding quarter with most aggressive estimates predicting a growth of close to 1.5%, while most conservative estimates peg a drop of close to 4%.

When compared to the year-ago numbers, the company should be able to maintain a high double-digit growth rate thanks to the low base. RIL's 



 should cheer if the company is able to surpass its own previous performance.