Analysts say Reliance Industries Ltd (RIL) upcoming third quarter earnings results will grow on its strong petrochemicals business, before refining picks up by the middle of 2021.
As oil majors across the world struggle because of subdued demand due to Covid-19, RIL hopes to bounce back in its oil and chemicals business with improved earnings from petrochemicals. RIL's overall earnings in the October-December quarter though refinery earnings remained flat. RIL is scheduled to announce its Q3 results Friday.
RIL had invested around Rs 1 lakh crore in expanding its petrochemicals growth through 2018. RIL wants to convert 70 per cent of its output from its Jamnagar refinery and petrochemical plant. Currently, the plant produces 90 per cent fuels, primarily petrol, diesel, kerosene, naphtha, and liquefied petroleum gas (LPG), and the rest 10 per cent accounts for chemicals.
Morgan Stanley expects RIL to report 14 per cent quarter-on-quarter (q-o-q) rise in earnings before interest, taxes, depreciation, and amortisation (EBIDTA) and a 16 per cent q-o-q recovery in earnings — though 5 per cent lower year-on-year, two-thirds of which to be driven by a recovery in petrochemicals EBIDTA, which is estimated to rise 26 per cent q-o-q.
Morgan Stanley maintains an overweight rating with a target of Rs 1,75 per RIL share. Its numbers from refining business were reasonable despite challenges faced in the quarter. The telecom business numbers were weaker than expected and deleveraging continues at RIL.
Axis Capital maintains a buy rating on RIL with a target price of Rs 1,900 per share. The brokerage said, “Consumer businesses is going from strength to strength, while Reliance Jio increased churn.” Its cyclical businesses saw a marginal miss, it said.
On Wednesday RIL shares closed at Rs 2,054 — up Rs 38.55 or 1.19 per cent per share.