RIL: Record refining margins boost Q1

Petchem margins at all-time high

Reliance Industries (RIL)’s performance for the June quarter was better than expectations, primarily led by the strong show of its refining segment. This segment contributes 60-65 per cent to its consolidated revenues and profit, and was expected to see some weakness. The reason: Benchmark Singapore GRM (gross refining margins) during the quarter were largely flat at $6.4 a barrel, while other product cracks were flat to down, leading to subdued expectations. 

Analysts at Motilal Oswal Securities had said RIL was expected to report a decline in its GRMs, led by narrowing light-heavy differential and inventory losses. Analysts were expecting GRMs to come around $11.2. The actual number at $11.9 per barrel (a nine-year high) was closer to RIL’s highest-ever GRM of $12 and higher than $11.5 each, in the previous and year-ago quarters.

This performance was largely driven by a rise in refining output, and also procurement of better quality crude, superior inventory management (countering volatility effectively) and better capacity utilisation, say analysts. The company said marginally weaker product cracks environment on a sequential basis was offset by yield shift and robust risk management. Also, favourable Brent-Dubai differential aided crude oil sourcing during the quarter.

While consolidated refining revenues increased 18.3 per cent year-on-year (y-o-y) and earnings before interest and taxes (Ebit) grew 13.4 per cent, the latter included exceptional item (income) of Rs 1,087 crore. But, analysts say the Ebit margins were still better than expectations.

The petchem segment, which makes up a fourth of consolidated revenues and a third of profits, also surprised positively. While volumes grew sequentially, the segment’s profitability was also expected to rise, both on y-o-y and sequentially, led by improved deltas and higher volumes. Petchem revenues grew 22.9 per cent and profitability by 43.7 per cent. The margins at 15.8 per cent expanded 230 basis point y-o-y and 280 per cent sequentially.

RIL’s revenues at Rs 90,537 crore (up 26.7 per cent y-o-y) beat Bloomberg consensus estimates of Rs 76,326 crore. Operating profit (Ebitda) at Rs 13,559 crore beat the estimated Rs 11,930 crore, and net profit at Rs 9,108 crore (up 28 per cent) was also bound to be higher than the Rs 7,765 crore estimated. Even excluding the one-off income, profits were ahead of estimates. Going ahead, financials of its telecom venture remains a key monitorable, even as confidence on Reliance Jio is growing with subscriber additions and progress on monetisation of services.