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The fourth quarter numbers of Reliance Industries Ltd (RIL) neither surprised nor disappointed the Street. As has been the case for the last few quarters, RIL's performance has been largely driven by the refining business. The company reported better-than-expected gross refining margins at $10.1/barrel in Q4. During the second quarter, the company conveyed that it was seeing sequential improvement in its core business, as demand was showing signs of revival.
However, if one looks at the company's full-year performance, signs of weakness persist. Though the company's net sales from core operations rose, its operating profit fell 2.2 per cent during the fiscal. While some of the deceleration in earnings can be attributed to the sharp decline in the exploration and production business, the weakness in profitability in its other key business segment also suggests that the overall demand scenario is not yet reflective of a revival in the petchem cycle. The company's gas production continues to shock the Street as Q4 gas output is down to 19.4 mscmd from 28.7 mscmd seen in Q3.
Refining business continues to save the day. Gross refining margins (GRMs), which had plummeted to $7.6/bbl in FY12, have picked up smartly in FY13. The pick-up was largely driven by outages during the second and third quarters, but it appears that the company's GRMs have only improved in the fourth quarter. Even as the segment's turnover declined compared to the corresponding quarter in the previous year, the segment's earnings before interest and tax (EBIT) grew 107 per cent. During FY2012-13, RIL's Jamnagar refineries processed 68.5 million tonnes of crude and clocked an average utilisation of 110 per cent, compared to 109 per cent achieved in the previous year.
While refining has been the star performer this year, petro-chemicals continues to show signs of weakness. The company's petchem sales are up both sequentially and annually, year-on-year earnings have declined 18.3 per cent in FY13 and 12.8 per cent in the fourth quarter. The road ahead seems hazy for RIL as the demand scenario does not look very promising either in petchem or refining. Emkay Global expects the company's core business to remain under pressure, as capacity additions across the globe and weak demand could impact the company. China has added substantial petchem capacities. The only catalyst in the near term could be any revision in gas prices.
These factors make it imperative for RIL to hit the bull's eye in its new consumer-oriented businesses. The retail business reported full-year revenue growth of 42 per cent to Rs 10,800 crore, and the company expects it to grow 25 per cent for the next five years. But for the next couple of quarters, don't expect this elephant to dance. malini bhuptAThe fourth quarter numbers of Reliance Industries Ltd (RIL) neither surprised nor disappointed the Street. As has been the case for the last few quarters, RIL's performance has been largely driven by the refining business. The company reported better-than-expected gross refining margins at $10.1/barrel in Q4. During the second quarter, the company conveyed that it was seeing sequential improvement in its core business, as demand was showing signs of revival.
However, if one looks at the company's full-year performance, signs of weakness persist. Though the company's net sales from core operations rose, its operating profit fell 2.2 per cent during the fiscal. While some of the deceleration in earnings can be attributed to the sharp decline in the exploration and production business, the weakness in profitability in its other key business segment also suggests that the overall demand scenario is not yet reflective of a revival in the petchem cycle. The company's gas production continues to shock the Street as Q4 gas output is down to 19.4 mscmd from 28.7 mscmd seen in Q3.
Refining business continues to save the day. Gross refining margins (GRMs), which had plummeted to $7.6/bbl in FY12, have picked up smartly in FY13. The pick-up was largely driven by outages during the second and third quarters, but it appears that the company's GRMs have only improved in the fourth quarter. Even as the segment's turnover declined compared to the corresponding quarter in the previous year, the segment's earnings before interest and tax (EBIT) grew 107 per cent. During FY2012-13, RIL's Jamnagar refineries processed 68.5 million tonnes of crude and clocked an average utilisation of 110 per cent, compared to 109 per cent achieved in the previous year.
While refining has been the star performer this year, petro-chemicals continues to show signs of weakness. The company's petchem sales are up both sequentially and annually, year-on-year earnings have declined 18.3 per cent in FY13 and 12.8 per cent in the fourth quarter. The road ahead seems hazy for RIL as the demand scenario does not look very promising either in petchem or refining. Emkay Global expects the company's core business to remain under pressure, as capacity additions across the globe and weak demand could impact the company. China has added substantial petchem capacities. The only catalyst in the near term could be any revision in gas prices.
These factors make it imperative for RIL to hit the bull's eye in its new consumer-oriented businesses. The retail business reported full-year revenue growth of 42 per cent to Rs 10,800 crore, and the company expects it to grow 25 per cent for the next five years. But for the next couple of quarters, don't expect this elephant to dance.
