ET Intelligence Group: The commissioning of hydrocarbon projects worth $20 billion amid rising global oil prices could boost core earnings growth at Reliance Industries (RIL), prompting the Street to likely enhance the future profit target at India's most valuable company.

A favourable crude oil cycle and the commissioning of a host of new projects will likely retain investor interest in the stock that returned 69 per cent in the past one year, compared with 28 per cent for the broader marketgauge — the NSE Nifty.

Core earnings — profits derived from the refining and petrochem segment — should gain because of the mega oil levered projects such as refinery-off-gascracker (RoGC), petcoke gasification, ethane import, paraxylene, and PTA. Fullyear benefits from these projects will start to accrue from the next fiscal year.

According to the company's guidance, these hydrocarbon projects could add $2-2.5 billion to the operating profit at Reliance, while the Street has been working with estimates of $1.5-1.8 billion. Therefore, the favourable crude oil trajectory could potentially narrow the gap between the company's guidance and Street expectations.

Reliance has recently commissioned a $4.5-billion RoGC unit that will produce higher value-added polymer derivatives from 4mmscmd of off-gas at its two refineries. Returns on the RoGC units should be superior for the company because of lower project costs, compared with similar gas crackers installed in the US. According to a note from Edelweiss, RoGC could generate incremental EBITDA of $1.2 billion, with the Return of Capital Employed (RoCE) at 21 per cent.

New Hydrocarbon Projects at RIL

Reliance's other big project of petcoke gasification, costing $5 billion, is expected to commission in the last quarter of the current fiscal. Higher crude oil prices have greater potential to improve the cost economics of the petcoke gasification project. This can be gauged from the fact that incremental operating profit from the project is estimated to be $700 million if crude oil is pegged at $50 per barrel, while it nearly doubles at the current prices of $65 per barrel.

Therefore, higher crude oil prices could improve the RoCE of the petcoke gasification project considerably. According to estimates, every $5 per barrel change in crude oil prices would alter Reliance's earnings per share (EPS) in the range of 4-5 per cent.