)
No fireworks were expected from Reliance Industries (RIL) in the second quarter, as refining margins came under pressure globally and input costs rose. Analysts were expecting year-on-year net profit growth of one per cent.
However marginal the beat, the company has managed to surprise the Street with its revenues and profit numbers. And, the profit beat has not been driven by other income. Jagannnadham Thunuguntla of SMC Global Securities says this is an encouraging sign as the core business has started to contribute more to profitability.
Despite continued volatility in the refining and petrochemicals business on a sequential basis, year-on-year sales grew 14.2 per cent and net profit grew 1.5 per cent, driven largely by petrochemicals and refining. Though other income declined by nearly Rs 500 crore sequentially, net profit rose 2.6 per cent. Notably, the operational metrics have improved and have driven the bottom line. Other income contributed 38 per cent of the profit before tax in Q1 but its share fell to 30 per cent in Q2.
The performance of the refining segment was expected to hurt profitability in Q2 as the Singapore GRMs (gross refining margins) plummeted to a 12-quarter low of $5.4/barrel during the period. Analysts expected RIL's Q2 GRMs to come in well below the $8.4/barrel seen in the first quarter.
The petchem segment's revenues grew 13 per cent sequentially and annually to Rs 24,892 crore. With the Ebit margin rising to 10 per cent in Q2 from 7.9 per cent last year, the segment's Ebit (earnings before interest and taxes) rose 44 per cent annually to Rs 2,504 crore. The stellar performance of the petchem business was largely driven by higher prices, which accounted for 7.4 per cent growth in revenue. Higher prices and stable volumes helped the company deliver superior growth.
Operationally, RIL's core businesses may be improving, but the market is still eyeing an improvement in the exploration business. Compared to last year, revenues from this segment declined by 35 per cent and the Ebit declined by 59 per cent in Q2. Analysts say a turnaround of this segment is crucial for the company.
