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Reliance Industries Ltd (RIL) beat analysts’ expectations during the July-September quarter, with its profit increasing 1.7 per cent over the year-ago period. Even as lower exports, a decline in crude oil prices and reduced refining and oil & gas volumes had a bearing on the company’s earnings during the quarter, higher profitability in the core refining & petrochemicals business helped. Good sales in the organised retail space also boosted the numbers for RIL.
On a consolidated basis, Reliance Industries’ turnover in the period stood at Rs 1,13,396 crore, a drop of 4.3 per cent from Rs 1,18,439 crore a year ago. At Rs 5,972 crore, however, its net profit was 1.7 per cent higher than Rs 5,873 crore in the same period last year. The value of its exports from India stood at Rs 66,065 crore, 14.7 per cent lower than Rs 77,428 crore in July-September 2013.
Given the group’s size, the business of Network18 Media and subsidiary TV18 Broadcast, which Reliance acquired in July this year, is not significant. But the media firm’s consolidation from this quarter also affected the year-on-year comparisons for RIL. For the July-September period, Network18 Media posted a consolidated net loss of Rs 0.4 crore on a turnover of Rs 744.8 crore.
Reliance Industries Chairman & Managing Director Mukesh Ambani said: “RIL’s financial performance for the period stands testimony to the intrinsic strength of our integrated business operations. The refining and petrochemical businesses again delivered robust results, outperforming regional industry benchmarks.”
Ambani added: “Renewed optimism in the domestic economy augurs well for business and consumer confidence, particularly against the backdrop of continuing concerns on global economic growth. We expect to create significant value for stakeholders over the next 12-18 months, as we complete our large investment programme across energy and consumer businesses.”
Analysts had expected RIL’s gross refining margins (GRM) — earnings from turning every barrel of crude oil into fuel — to decline, in line with benchmarks, driven by lower middle distillate cracks. But the company posted a GRM of $8.3 a barrel, against $7.7 a year ago.
“RIL’s premium over regional benchmark widened to $3.5 a barrel, compared with $2.5 a barrel in the corresponding period last year, primarily aided by wider crude oil differentials and sourcing advantage,” RIL said in its earnings statement.
Reliance operates the world's largest single-location refinery complex at Gujarat's Jamnagar. The two refineries have a combined crude oil processing capacity of 1.36 million barrels a day. Given a better configuration of the refineries, RIL’s GRM is usually $2-3 a barrel higher than the Singapore benchmark.
The benchmark Singapore GRM has dropped $1 a barrel to a 16-quarter low of $4.8 due to a seasonal weakness and lower global demand for products like petrol and diesel.
During the quarter, Brent crude oil declined 7.3 per cent from a year ago. The rupee, on the other hand, became 1.3 per cent weaker on a sequential basis, and appreciated 2.3 per cent annually.
Because of a decline in crude oil prices and processing, Reliance's revenue from the refining & petrochemical segment fell 5.9 per cent to Rs 1,03,590 crore. However, despite lower crude oil throughput, Reliance's segment Ebit (earnings before interest and tax) for the quarter rose 18.5 per cent to Rs 3,844 crore, led by a higher GRM.
With a higher contribution from the refinery & petrochemicals business, RIL's operating profit before other income and depreciation increased 10.8 per cent on a year-on-year basis (from Rs 8,865 crore to Rs 9,818 crore).
Its 'other income' reduced to Rs 2,009 crore from last year's Rs 2,346 crore, primarily on account of lower investible surplus. The net addition to fixed assets during the first six months of 2014-15 stood at Rs 44,895 crore.
Depreciation (including depletion and amortisation) stood at Rs 3,024 crore, 8.2 per cent higher than Rs 2,796 crore last year. Interest cost, at Rs 997 crore, increased a little from Rs 959 crore in the year-ago period.
Rahul Shah, vice-president (equity advisory group), Motilal Oswal Securities Ltd, said: "RIL's quarterly result, though higher than the Street projections, was broadly in line with our expectations. An increase in GRM is a positive and has surprised analysts."
RIL's oil & gas exploration business saw a decline. Its KG-D6 block produced 0.5 million barrels of crude oil, 0.1 million barrels of condensate and 40.6 billion cubic feet of natural gas, during the quarter. A fall in production was mainly due to natural decline in the fields, partly offset by incremental production from the new well MA08 and side track in well MA6H during the previous year, the company said.
The Panna-Mukta fields produced 1.8 million barrels of crude oil and 16.5 bcf of natural gas.
Investment advisor, S P Tulsiyan, said: "RIL's result is very good. Both refining and petrochemicals have surprised. GRM, too, has been much better than expected. These levels should be sustained. There may not be any earnings revision, but I believe the stock would rise to Rs 988 in Tuesday's trade."
Despite lower pricing and higher gas differentials, RIL's shale gas business registered strong revenue growth. The production of its joint venture with Marcellus remained below potential due to frac operations in offset wells and midstream maintenance activities, as well as forced shut-ins, at times to prevent lower realisation. Segment Ebit was down 17.3 per cent in a year-on-year basis to Rs 488 crore.
Reliance, which is planning to sell its 45 per cent stake in the Eagle Ford Shale acreage, said continued strong performance of the Eagle Ford JV provided strong base for performance in the current quarter.
Overall capital expenditure during the quarter stood at $321 million, while the cumulative investment across all JVs was $7.7 billion. A substantial part of capex for the Pioneer and Carrizo JVs was met through cash from the respective operations.
RIL Chief Financial Officer Alok Agarwal said: “The assets where the company is not the operator and has seen value appreciating are under review.”
Revenue from the petrochemicals segment declined 1.8 per cent to Rs 26,651 crore. Segment Ebit for the quarter, at Rs 2,361 crore, was down 0.8 per cent in a year-on-year basis. However, on a sequential basis Ebit increased 26.7 per cent, led by a strong rebound in polymers, fibre intermediates and aromatics margins.
The company's retail business recorded the highest revenue and PBIDT (profit before interest, depreciation and tax) in any quarter. Revenue for Reliance Retail grew 20 per cent on a year-on-year basis to Rs 4,167 crore. The business recorded a PBIDT of Rs 186 crore, an annual increase of 96 per cent.
On Monday, the shares of Reliance Industries fell 0.3 per cent from their previous close to end at Rs 957.90 apiece on BSE. The stock has gained seven per cent this year, compared with a 25 per cent increase in benchmark Sensex.
