)
Reliance Industries Ltd (RIL) exceeded the Street's earning estimates in the June quarter by a wide margin. The company's net profit in the three-month period rose 13.7 per cent on a year-on-year basis to Rs 5,957 crore, while its turnover rose 7.2 per cent to Rs 1,07,905 crore.
The revenue growth was primarily driven by higher prices, while the bottom line got a boost from improved margins in the refining & petrochemicals business. While operational efficiencies and significantly lower interest expenses drove earnings, stability in the rupee's value helped the company trim the interest cost on its debt to Rs 505 crore from Rs 938 crore. Analysts believe the company has offset hedging gains against interest cost, rather than reporting it under other income.
Higher contribution from its core businesses resulted in Reliance Industries' operating profit in the quarter growing 14.4 per cent annually to Rs 8,989 crore. The company has often been criticised for a high share of other income in its net profit. But its earnings during the April-June quarter were driven by operational improvement, while other income declined on a year-on-year basis. The company's other income fell to Rs 1,974 crore from Rs 2,392 crore in the first quarter of 2013-14.
The earnings were pushed by higher-than-estimated refining margins and better petrochemical netbacks, coupled with a surge in the US shale gas business. Other than operational factors, the bottom line got a boost from lower interest costs and a depreciation during the quarter. "RIL has delivered a record level of consolidated net profit in this quarter. This was achieved despite weak regional refining margins and a planned turnaround in our refinery... we have a great pipeline of new projects that will give Reliance an enduring competitive advantage," said Reliance Industries Chairman and Managing Director Mukesh Ambani.
The Street was expecting Reliance Industries to report lower gross refining margins (GRM) than those in the fourth quarter of 2013-14, as the refining margins in Singapore were lower during the quarter, at $5.8 a barrel, compared with $ 6.7 per barrel in the same quarter last year. The company, which operates the world's largest single-location refinery complex at Gujarat's Jamnagar, earned $8.7 a barrel for turning every barrel of crude oil into fuel, against $8.4 a barrel a year ago.
Analysts expected RIL's GRM to be around $8.5-$8.6 a barrel, but the company's margins exceeded estimates. It recorded a 7.2 per cent rise in revenue from the refining and marketing segment to Rs 98,081 crore, while its ebit (earnings before interest and tax) increased 29.4 per cent to Rs 3,814 crore. Apart from higher-than-expected margins, operational expenditure in the refining business was also lower; this gave a further boost to the refining ebit, analysts believe. "This quarter, refining was better on a year-on-year basis," explained RIL Chief Financial Officer Alok Agarwal.
In the petrochemicals segment, the company's revenue increased 9.3 per cent annually to Rs 25,398 crore. Revenue growth was primarily on account of an increase in prices. "The petrochemicals business performance highlights the strength of our portfolio mix and end-market diversity," said Ambani. On the exploration and production front, Reliance's shale gas business posted a revenue of Rs 1,620 crore, compared with a revenue of Rs 1,557 crore from the domestic segment.
During the quarter, RIL's petrochemical ebit margins stood at Rs 1,863 crore, against Rs 1,757 crore during the April-June quarter of last year.
Gas production from the company's KG block stood at 42 billion cubic feet, down 15 per cent from that in the same period a year ago. "A decline in production was mainly on account of a shutdown of wells in D1-D3 fields," RIL said. The segment revenue from domestic oil & gas operations stood at Rs 1,557 crore, against Rs 1,454 crore in the year-ago period, while Ebit margins were 38.4 per cent higher at Rs 487 crore.
On the retail front, revenue for Reliance Retail during the quarter was up 15 per cent to Rs 3,999 crore. Mukesh Ambani said RIL was further expanding its retail business in the existing markets, while exploring newer markets and channels. A fund manager from leading brokerage said good profitability in the retail segment would add to sum-of-the-parts (SOTP) valuations of the stock.
Depreciation (including depletion and amortisation) was 2.3 per cent higher at Rs 2,782 crore, compared with Rs 2,719 crore in the corresponding period a year ago. The company had cash and cash equivalents of Rs 81,559 crore in bank deposits, mutual funds, certificates of deposit, government securities and bonds.
