Dipping petrochem profit, flat refinery margin to blame.
Mukesh Ambani-promoted Reliance Industries (RIL), the largest private oil refiner in India, posted a 7.4 per cent rise in its second-quarter profit, the third-slowest growth in the past eight years.
The company’s profit witnessed a marginal rise at Rs 4,122 crore in the three months ended September 2008 as profit from its petrochemical division dropped and refinery margins remained flat.
The net turnover of RIL, the country's largest private company by market capitalisation, rose 40 per cent to Rs 44,787 crore in the quarter compared with Rs 32,043 crore a year earlier.
During the quarter under review, RIL's revenue from sale of refined petroleum products was up by 54 per cent at Rs 36,393 crore.
Revenue from export surged 51 per cent to Rs 29,823 crore. The company exports products mainly to the US, Europe and West Asia after it stopped sales in the domestic market.
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However, profit from refining activities grew at a much slower rate at 20 per cent to Rs 2,774 crore in the second quarter ended September 2008.
In case of the petrochemicals division, Reliance Industries reported a 6 per cent decline in operating profit (that is profit before interest and tax) even as revenue increased by nearly 20 per cent during July- September 2008.
Also, the profits for the second quarter would have been lower by Rs 1,108 crore had the company provided for loss arising out of the foreign exchange difference on overseas borrowings according to the Accounting Standard-11. But RIL adjusted this loss on the value of assets it holds in the balance sheet in compliance with the Companies Act, citing legal advice.
On the business expansion front, mainly for the production of gas and oil from the Krishna-Godavari basin, the company spent Rs 11,401 crore in the first six months of the financial year, RIL said in a statement.
"We have started production of oil from the KG basin and soon will emerge as a key hydrocarbons major. At Reliance, we are at the final leg of capital expenditure in our key businesses and will see cash flows from these investments in the following quarters,” said Mukesh Ambani, the chairman and managing director of RIL.
Commenting on the ongoing financial crisis, Ambani, in a press statement, said, “Leading economies across the globe are passing through some unprecedented times. Our businesses are gearing up to meet these emerging challenges."
Beating market expectations, the company's gross refining margins (GRM) stood at $13.4 a barrel, a premium of $7.4 a barrel over the Singapore benchmark. It is well above the benchmark Asian Dubai crack margin, which averaged about $5.8 a barrel in the period.
Analysts tracking oil companies had predicted earlier that RIL, which control around 22 per cent of the country's refining capacity, will report refinery margins of less than $13 a barrel during the quarter compared with over $15 a barrel in the June quarter this year and $13.6 a barrel in July-September 2007. Motilal Oswal, in its recent report, predicted that the GRM would be around $13 a barrel.
Manish Sonthalia, vice-president (equity strategy), Motilal Oswal Securities, said, "The GRM of $13.4 is better than expected and this is a positive surprise. The petrochemical margin has also come in better than expected. Keeping into account the share price of RIL of around Rs 1,200, it is the right entry point for investors having a one-year view.
We are estimating Rs 111 earnings per share this financial year and forecasting Rs 208 for the next as gas production from the KG basin increases. Besides, Reliance Petroleum's new refinery in Jamnagar, which will begin operation soon, will contribute significantly to the increase in earnings."
During the quarter under review, the expenditure shot up 44.4 per cent to Rs 39,577 crore, with a rise in price of crude oil, the major raw material for its Jamnagar refinery, which contributes about 65 per cent of its revenues. The raw material cost stood at Rs 34,978 crore, up 60 per cent.
The company has about three days' inventory of finished goods with it, which added Rs 1,583 crore with the expenditure. The depreciation of assets and purchases of chemicals and catalysts in the quarter cost about Rs 2,401 crore.
The Jamnagar refinery has processed 8.21 million tonnes of crude oil during the second quarter, while the company's petrochemicals production remained flat.
The company's scrip closed at Rs 1,215, down 7.62 per cent on the Bombay Stock Exchange on Thursday. The results were announced after the market hours.