Textiles-to-petrochemicals major Reliance Industries once again surprised analysts and industry alike by posting a 10 per cent jump in net profit to Rs 921 crore in the first half of 1998-99. Sales rose to Rs 7,374 crore, up 16 per cent, while operating profit jumped 19 per cent to Rs 1,443 crore.
Riding on a 32 per cent growth in volumes, RIL capitalised on improved efficiencies and costs due to higher operating capacities and lower product prices to beat analysts' estimates of a net profit between Rs 870 crore and 900 crore.
RIL's performance comes in the backdrop of falling product prices and stiff import competition that has hurt the textiles and petrochemicals industry.
However, the robust first-half performance failed to buoy the scrip, which touched an intra-day low of Rs 107.50 on the Bombay Stock Exchange, before recovering marginally to close at Rs 107.80. On Wednesday, it had closed at Rs 119.
RIL managing director Anil D Ambani said in Mumbai yesterday that the key factors resulting in the good performance were strong volume growth and the benefits accruing from a higher degree of vertical backward integration. The company's production rose 47 per cent from 2.35 million tonnes to 3.45 million tonnes during the first half of 1998-99.
Even as volumes grew by 32 per cent, there was a 16 per cent decline in the product's selling price. Operating margins increased to 19.6 per cent from 19.1 per cent.
Reliance was able to improve profitability thanks to higher capacity utilisation, lower raw material costs and higher volume growth and depreciation of the rupee. Prices of naphtha, ethylene di-chloride and paraxylene fell in the first half. Only a portion of the benefits could be retained due to a fall in product prices, but that was good enough for profitability.
Ambani said he expected pressures on operating margins due to demand-supply imbalances to be short-lived. The cancellation or delay of various projects in several Asian countries may lead to restoration of demand-supply projections, he felt.
"We have seen prices recover in the last two months. Hopefully, this should last and continue to improve," he added.
Contrary to the general impression of a slowdown in the economy, Ambani said, "the company is well organised and isolated from what is happening in the rest of the economy". He pointed out that the sharp decline in the principal feedstock has cushioned the production margin.
While providing an overall view of the global economy, Ambani said Reliance was comfortably placed with a debt equity ratio of 0.93 :1 in the first half of 1998-99 compared to 6:1 and 40:1 in case of a few global petrochemical majors. With all plants commissioned at its Hazira Petrochemical complex, the interest expense has increased to Rs 347 crore, up 46 per cent compared to Rs 238 crore in the corresponding period last year. Capital expenditure during the period under review was over Rs 1,350 crore on account of the ongoing Jamnagar Petrochemical complex. During the second half of 1998-99, the expenditure is expected to be anywhere between Rs 1,500 crore and Rs 2,000 crore, Ambani said while addressing presspersons here yesterday.
Ambani said that the capex will be largely funded from internal accruals and debt.He added that Reliance has increased its market share during the first half of the current fiscal year. In polyester business the share grew from 39 per cent in the first half of 1997-98 to 43 per cent in the first half of 1998-99. In case of fibre intermediates the share was up from 78 per cent to 81 per cent and in plastics from 58 per cent to 61 per cent during the same period.
Reliance operated its polyester facilities at full capacity and increased production volumes by 31 per cent to 2.8 lakh tonnes. Volumes in the fibre intermediates were up by 61 per cent to 6.36 lakh tonnes and plastic buisness reported 19 per cent increase in volumes to 5.16 lakh tonnes. The cracker operated at its rated capacity of 7.5 lakh tonnes.
