RIL: Going strong

Strong gross refining margins lead to an improved performance in the third quarter.

Reliance Industries reported an improved performance in Q3 FY08, led by strong gross refining margins (GRMs) in its key refining division. However, the rising input costs put pressure on the overall margins.

The company's core operating profit grew 12.6 per cent y-o-y in Q3 FY08, while its net turnover rose 22.7 per cent.

Its operating profit margin declined by 150 basis points y-o-y to 16.9 per cent.

The pressure on margins was due to a 150 basis point increase in adjusted raw material costs as a percentage of the net turnover. The stock declined 3.3 per cent to Rs 2996.

In the petrochemical division, the production of polymers such as PVC, polyethylene and polypropylene was flat on a y-o-y basis at 852,000 tonnes.

The higher naphtha prices reduced margins in products such as polyethylene, but the company leveraged higher margins in PVC.

The polyester production was up one per cent, but higher input prices put pressure on the polyester chain margins.

Meanwhile, in the key refining division, RIL processed 7.6 million tonnes of crude in Q3 FY08, a y-o-y decline of nearly 3.8 per cent.

The shutdown of a crude distillation facility unit, in October 2007, resulted in lower processing of crude on a y-o-y basis.

However, the GRMs were $15.4 a barrel in Q3 FY08 compared with $11.7 a year earlier. R

IL has once again been able to do better than the regional benchmark Singapore refining margin of $7.7 a barrel in the last quarter due to its ability to process heavy and sour crude, coupled with higher product prices for several petroleum products in overseas markets.

RIL sold 18 crore shares of Reliance Petroleum in November 2007 for Rs 4,023 crore, representing 4 per cent of its stake. The exceptional items worth Rs 4733 crore in Q3 FY08 mainly referred to the above transaction. This resulted in the profit before taxes surging 151.1 per cent y-o-y to Rs 9,341 crore.

The stock of RIL trades at 33 times estimated FY08 and 25 times FY09 earnings, given its rapid expansion in fast-growing sectors such as retail and oil exploration.