Higher gross refining margins have helped Reliance Industries (RIL) offset lower oil and gas production and post its highest net profit ever. Meeting forecast, RIL reported a 15.8 per cent rise in its net profit at Rs 5,703 crore for the July-September quarter of 2011. Its net profit for the corresponding previous quarter stood at Rs 4,923 crore.
“RIL’s net profit for the quarter is the highest profit for any quarter in the company's history. It is largely in line with expectation, both on the revenue and net profit side. However, the positive surprise came from the “Other Income” segment, as it had surely benefited from the weakening rupee and treasury income on the ample cash balances on the balance sheet,” said Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities Limited.
During the quarter, RIL's gross refining margins (turning every barrel of crude oil into fuel), was up 27.8 per cent at $10.1 a barrel against $7.9 a year earlier, though it was slightly below expectation. RIL refineries processed a record 34.1 million tonnes of crude oil, achieving a utilisation rate of over 110 per cent during the first half. “The increase in profits was largely driven by improved performance in the refining and petrochemicals business. All our manufacturing facilities operated at record levels with refineries achieving operating rates of 110 per cent,” Mukesh Ambani, chairman and managing director, RIL, said in a statement.
RIL’s net turnover for the quarter rose 36.7 per cent at Rs 78,569 crore against Rs 57,479 crore during the corresponding previous quarter.
“Production from KG-D6 was 2.7 million barrels of crude oil, and 303.4 billion cubic feet of natural gas, a reduction of 42.1 per cent and 20.3 per cent, respectively, on a year-on-year basis. The reduction in production was mainly due to reservoir complexity,” the company said.
In contrast, gas production from Panna-Mukta increased by 63 per cent to 35.2 billion cubic feet and oil production rose by 39 per cent to 5.2 million barrels of crude oil. Gas production from Tapti decreased 22.8 per cent at 39.8 billion cubic feet of natural gas due to a natural decline.
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Refining forms over 40 per cent of RIL’s overall business with petrochemicals and oil and gas forming 35 per cent and 15 per cent, respectively.
During the quarter, revenue from the company’s petrochemicals business was up by 39.5 per cent to Rs 21,066 crore up from Rs 15,096 during the corresponding previous quarter. “On the petrochemical front, RIL’s EBIT margins dipped to 11.50 per cent, lower than the 14.60 per cent in the July-September 2010 quarter. Hence, on year-on-year basis, there is a decline of 3.10 per cent on the petchem EBIT margins. This will impact the operational profit margins,” added Thunuguntla.
The company said integration process with BP was underway. The government had approved RIL’s proposal to sell 30 per cent stake in 21 blocks to BP. Pursuant to the approval, all payments due from BP have been received as per the terms of agreement. All production sharing contracts have been amended, signed by BP and RIL along with Hardy and Niko wherever applicable and have been submitted to the Government. “The integration process is currently underway, and the joint teams are evolving strategies to operate across the gas value chain in India from exploration, development, distribution and marketing. The teams are also reviewing key imperatives aimed at maximising production opportunities from KG-D6 and other discoveries in the blocks they hold together,” the company said.
Analysts however, said two key issues concerning RIL’s future performance would be how it is able to ramp up production from its flagship KG D6 block, and how does it plan to deploy the huge cash balance of Rs 61,490 crore. On Friday, RIL was trading higher by 2.36 per cent at Rs 866.80, on the Bombay Stock Exchange.