 "Reliance Industries: Well-oiled performance")
Reliance Industries Ltd (RIL) reported a stellar show for December quarter (Q3) led by the core refining and petchem segments that contribute 65 per cent and 22 per cent to gross revenues. Consolidated sales at Rs 68,261 crore were much higher than consensus Bloomberg estimates of Rs 60,687 crore while net profit at Rs 7,290 crore beat estimates of Rs 7,100 crore.
RIL’s gross refining margins (GRMs) at $11.5 a barrel were the highest in last seven years, and led the segment’s profit before interest and tax (PBIT) to double to Rs 6,491 crore compared to Rs 3,267 crore in the year ago quarter. This is despite revenues declining to Rs 57,385 crore from Rs 81,777 crore in year-ago quarter, due to the sharp decline in crude oil prices. Petchem PBIT too increased from Rs 2,064 in year ago quarter to Rs 2,639 crore. With both refining and petchem segments outperforming, overall profits were bound to remain buoyant.
Amongst others, oil and gas segment contributing just two per cent to gross revenues continues to witness pressure with revenues down 38 per cent and PBIT at just one-tenth of the year-ago quarter figure. Retail segment (about seven per cent of gross revenue) sales jumped 29 per cent but its PBIT grew just 10.5 per cent year-on-year indicating that profitability is under pressure.
With RIL’s telecom services being rolled out, all eyes are set on it. Motilal Oswal Securities note post results says, “We rate the stock as neutral as the huge investment in telecom is yet to start contributing to cash flows and is currently a drag on return ratios.” However, research firm Credit Suisse had said that the stock is currently writing off $10 billion in telecom investments, which they think is harsh and commercial launch of Jio services is a key catalyst and maintained ‘outperform’ rating on the stock. Clearly, the launch and success of Reliance Jio remains crucial for outperformance of the stock to continue. The stock hit an 18-month high on Tuesday on expectations of good numbers before closing at Rs 1,043.60.
RIL’s gross refining margins (GRMs) at $11.5 a barrel were the highest in last seven years, and led the segment’s profit before interest and tax (PBIT) to double to Rs 6,491 crore compared to Rs 3,267 crore in the year ago quarter. This is despite revenues declining to Rs 57,385 crore from Rs 81,777 crore in year-ago quarter, due to the sharp decline in crude oil prices. Petchem PBIT too increased from Rs 2,064 in year ago quarter to Rs 2,639 crore. With both refining and petchem segments outperforming, overall profits were bound to remain buoyant.
Amongst others, oil and gas segment contributing just two per cent to gross revenues continues to witness pressure with revenues down 38 per cent and PBIT at just one-tenth of the year-ago quarter figure. Retail segment (about seven per cent of gross revenue) sales jumped 29 per cent but its PBIT grew just 10.5 per cent year-on-year indicating that profitability is under pressure.
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RIL’s $30-billion or Rs 1,80,000-crore investments in refining and petchem spread over 3-5 years investments announced in 2014 is now keeping the street sentiments up. The excess availability of crude is also favouring RIL which has among the most complex refineries in the world. Analysts at HSBC, in their previous note looking at strong utilisation levels, estimate RIL to report GRMs of $10.5 a barrel each in FY16 and FY17 and $10 a barrel in FY18. Interestingly, with low-yielding cash being deployed in higher-return core businesses, expect RIL’s return ratios to improve.
With RIL’s telecom services being rolled out, all eyes are set on it. Motilal Oswal Securities note post results says, “We rate the stock as neutral as the huge investment in telecom is yet to start contributing to cash flows and is currently a drag on return ratios.” However, research firm Credit Suisse had said that the stock is currently writing off $10 billion in telecom investments, which they think is harsh and commercial launch of Jio services is a key catalyst and maintained ‘outperform’ rating on the stock. Clearly, the launch and success of Reliance Jio remains crucial for outperformance of the stock to continue. The stock hit an 18-month high on Tuesday on expectations of good numbers before closing at Rs 1,043.60.